Question

Oakleaf Manufacturing 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 Oakleaf has adequate manufacturing capacity, it should
A: accept the offer because it will produce net income of $12,600.
B: accept the offer because it will produce net income of $21,000.
C: reject the offer because it will result in a net loss of $12,600.
D: reject the offer because it will result in a net loss of $21,000.

Answer 1

Answer:D. reject the offer because it will produce a net loss $21,000

Explanation:

Net income or loss is the total of firm's income less it's total cost( fixed and variable) . The contract will result in a loss $5 per unit which multiply by the total units of 4200 gives $21,000