Question

At Bargain Electronics, it costs $30 per unit ($20 variable and $10 fixed) to make an MP3 player that normally sells for $55. A foreign wholesaler offers to buy 4,960 units at $24 each. Bargain Electronics will incur special shipping costs of $3 per unit. Assuming that Bargain Electronics has excess operating capacity.
Required:
Indicate the net income (loss) Bargain Electronics would realize by accepting the special order.

Answer 1

Solution :

Computing the net income or loss if the company B realized the special order as given below:

                                  Reject order         Accept order           Net Income

                                                                                          Increase(Decrease)

Revenues                        0                      $ 1,19,040               $ 1,19,040

Cost : Manufacturing      0                    - $ 99,200                - $ 99,200

Shipping                          0                    - $ 14,880                 - $ 14,880

Net Income                     0                        $ 4960                     $ 4960