Question

Stewart Corporation manufactures solar powered calculators. The company can manufacture 1,120,000 calculators a year at a variable cost of $2,352,000 and a fixed cost of $1,232,000. Based on management’s projections for next year, 952,000 calculators will be sold at the regular price of $16.00 each. A special order has been received for 232,000 calculators to be sold at a 70% discount off the regular price. Total fixed costs would be unaffected by this order. The company's net operating income will be increased as a result of the special order by: (Do not round your intermediate calculations.)
a. $371,200.
b. $1,113,600.
c. $626,400.
d. $487,200

Answer 1

Answer:

Option (c) is correct.

Explanation:

Given that,

No. of calculators manufacture = 1,120,000

variable cost = $2,352,000

Fixed cost = $1,232,000

No. of calculators for the special order = 232,000

Variable cost per unit:

= Variable cost ÷ No. of calculators manufacture

= $2,352,000 ÷ 1,120,000

= $2.10 per unit

Income (Loss) from special order  :

= Sales - Variable costs

= (232,000 × $16 × 30%) - (232,000 × $2.10)

= $1,113,600 - $487,200

= $626,400