Answer:
If the special offer is accepted, the net operating income will decrease in $120,000
Explanation:
Giving the following information:
Total variable cost= $2,200,000
Fixed cost= $1,100,000
Based on management’s projections for next year, 950,000 calculators will be sold at the regular price of $15.00 each. A special order has been received for 230,000 calculators to be sold at a 60% discount off the regular price.
Because the company can't provide the 950,000 units and the 230,000 special offer, the offer will cannibalize sales from the 950,00 units.
Special offer sale price= 15*0.4= $6
Unitary variable cost= 2,200,000/1,100,000= $2 per unit
<u>First, we will calculate the net income without the special offer</u>:
Sales= 950,000*15= 14,250,000
Total variable cost= 950,000*2= (1,900,000)
Contribution margin= 12,350,000
Fixed costs= (1,100,000)
Net operating income= 11,250,000
<u>With the special offer:</u>
Sales= (230,000*6) + (870,000*15)= 14,430,000
Total variable cost= (2,200,000)
Contribution margin= 12,230,000
Fixed costs= (1,100,000)
Net operating income= $11,130,000
If the special offer is accepted, the net operating income will decrease in $120,000
