Question

A company incurs costs of $75 ($67 variable and $8 fixed) to make a product that normally sells for $120. A customer offers to buy 4,200 units at $70 each. Assuming the company has adequate manufacturing capacity, it should? *

Answer 1

Answer:

C : accept the offer because it will produce net income of $12,600.

Explanation:

In this question we have to compare the cost which is presented below:

In the first case

The variable cost would be

= Number of units buys × variable cost per unit

= 4,200 units × $67

= $281,400

And, the selling cost would be

= Number of units sold × selling price per unit

= 4,200 units × $70

= $294,000

So, the difference would be

= $294,000 - $281,400

= $12,600