Question

Vaughn Manufacturing manufactures a product with a unit variable cost of $100 and a unit sales price of $186. 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 $130 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 increase by $40,000.
B. Income would increase by $8,000.
C. Income would decrease by $8,000
D. Income would increase by $140,000

Answer 1

Answer:

The correct option is A. Income would increase by $40,000.

Explanation:

Note: There are some errors in the data provided in this question. The errors are threfore fixed by providing the complete question again before answering the question as follows:

Vaughn Manufacturing 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 increase by $40,000.

B. Income would increase by $8,000.

C. Income would decrease by $8,000

D. Income would increase by $140,000

The explanation of the answer is now given as follows:

Additional units to be sold = 1000

Selling price per unit of additional units to be sold = $140

Unit variable cost = $100

Expected change in income if the special order is accepted = (Selling price per unit of additional units to be sold - Unit variable cost) * Additional units to be sold = ($140 - $100) * 1000 = $40,000

Therefore, the correct option is A. Income would increase by $40,000.