Question

At Bargain Electronics, it costs $29 per unit ($16 variable and $13 fixed) to make an MP3 player that normally sells for $51. A foreign wholesaler offers to buy 4,750 units at $25 each. Bargain Electronics will incur special shipping costs of $1 per unit. Assuming that Bargain Electronics has excess operating capacity, indicate the net income (loss) Bargain Electronics would realize by accepting the special order. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Answer 1

Answer:

The special order should be accepted, as it will increase Net income by $38,000.

Explanation:

                            Differential Analysis

                                   Reject     Accept     Net income Increase/(Decrease)

Revenues                       0        $118,750                 $118,750  

Cost-manufacturing       0        $76,000                -$76,000  

Shipping                         0        $4,750                   -$4,750

Net income                    0        $38,000                 $38,000

The special order should be accepted, as it will increase Net income by $38,000.

Workings

Accept Order Revenue = 4,750 *$25 = $118,750

Accept Order Cost-manufacturing = 4,750 * $16 = $76,000

Accept Order Shipping = 4,750 * $1 = $4,750