Question

Bluebird mfg. has received a special one-time order for 15,000 bird feeders at $2.50 per unit. bluebird currently produces and sells 75,000 units at $6.50 each. this level represents 80% of its capacity. these bird feeders would be marketed under the wholesaler's name and would not affect bluebird's sales through its normal channels. production costs for these units are $3.65 per unit, which includes $2.00 variable cost and $1.65 fixed cost. if bluebird accepts this additional business, the effect on net income will be:

Answer 1

Since the units can be produced within existing plant capacity, the special order will not increase fixed costs. Let’s identify the relevant data for the decision. First, the variable
manufacturing costs will increase $30000 (15000×2). Second, the expected revenue will increase $37500 (15000×2.5). Thus, will increase its net income by $7500 (37500-30000) by accepting this special order.