Question

Bluebird Mfg. has received a special one-time order for 15,000 bird feeders at $3 per unit. Bluebird currently produces and sells 75,000 units at $7.00 each. This level represents 80% of its capacity. Production costs for these units are $3.50 per unit, which includes $2.25 variable cost and $1.25 fixed cost. If Bluebird accepts this additional business, the effect on net income will be:
A. $45,000 increase.

B. $11,250 increase.

C. $33,750 increase.

D. $7,500 decrease.

E. $33,750 decrease

Answer 1

Answer:

The correct answer is B.

Explanation:

Giving the following information:

Special one-time order for 15,000 bird feeders at $3 per unit.

Variable cost= $2.25

Because it is a special offer and there is unused capacity, we will not have into account the fixed costs.

Effect on income= 15,000*(3 - 2.25)= $11,250 increase.