Question

Baden Company manufactures a product with a unit variable cost of $100 and a unit sales price of $176. Fixed manufacturing costs were $480000 when 10000 units were produced and sold. The company has a one-time opportunity to sell an additional 1000 units at $140 each in a foreign market which would not affect its present sales. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows:
a. Income would decrease by $8,000.
b. Income would increase by $8,000.
c. Income would increase by $140,000.
d. Income would increase by $40,000.

Answer 1

Answer:

d. Income would increase by $40,000

Explanation:

Calculation to determine what the acceptance of the special order would affect net the income

Net income=(Additional unit price*Additional units)-(Variable cost *Additional units

Let plug in the formula

Net income = ($140× 1,000)-($100×1,000)

Net income= $140,000-$100,000

Net income=$40,000 Increase

Therefore If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows Income would increase by $40,000