Answer:
The company should accept the special offer because it increases income by $23,400.
Step-by-step explanation:
Giving the following information:
Variable costs:
Direct materials $1.50
Direct labor $3.00
Variable manufacturing overhead $0.50
Variable selling and administrative expenses $1.30
Total variable cost= $6.3
An order has been received from a mail-order house for 2,000 units at a special price of $18.00 per unit.
<u>Because it is a special offer and there is unused capacity, we will not take into account the fixed costs:</u>
Effect on income= number of units*unitary contribution margin
Effect on income= 2,000* (18 - 6.3)
Effect on income= $23,400 increase
The company should accept the special offer because it increases income by $23,400.
