Answer:it is advantageous not to accept the order, the added volume will not reduce the cost, the operating income will reduce from $1,350,000 to $850,000
Explanation:
Profit statement
Accept order
$
Sales (8.70×500,000) 4,350,000
Less: variable cost. 2,500,000
------------------
Contribution 1,850,000
Less fixed cost. (2.00 × 500,000) ( 1,000,000)
--------------------
Profit 850,000
------------------
Do not accept the order
$
Sales. ( 8.70×500,000) 4,350,000
Less Variable cost. 2,000,000
------------------------
Contribution. 2,350,000
Less fixed cost. (1,000,000)
-----------------------
Profit. 1,350,000
-------------------------
It is advantageous not to accept the order, The added volume will not reduce the cost
The impart on total operating income if the order had been accepted is a reduction in profit from $1,350,000 to $850,000
