Question

It costs Sheridan Company $12 of variable and $5 of fixed costs to produce one bathroom scale which normally sells for $35. A foreign wholesaler offers to purchase 1700 scales at $15 each. Garner would incur special shipping costs of $1 per scale if the order were accepted. Sheridan has sufficient unused capacity to produce the 1700 scales. If the special order is accepted, what will be the effect on net income

Answer 1

Answer:

$3,400 Increase

Explanation:

Computation to determine what will be the effect on net income

Using this formula

Effect on net income = Units ordered * (Special price - Variable cost)

Let plug in the formula

Effect on net income = 1700 * [$15- ($12+$1)]

Effect on net income = 1700 * ($15 -$13)

Effect on net income = 1700 *$2

Effect on net income = $3,400 Increase

Therefore If the special order is accepted, what will be the effect on net income will be $3,400 Increase