Question

Goodstone Tire Corporation sells tires for $100 each. Per unit costs associated with producing and selling the tires are: Direct materials and labor $45; Factory overhead $20; Selling and administrative $15. The variable portion of the factory overhead is $8 per unit. A foreign company wants to purchase 10,000 tires for $70 each. The order would not require any selling or administrative costs. The purchaser will pay the shipping costs, but Goodstone will have to pay a $100,000 inspection fee in order to be able to make the foreign sale. Accepting the special order will not affect current sales or production. What effect would accepting the special order have on Goodstone's net operating income

Answer 1

Answer:

Goodstone's net operating income will increase by $70,000.

Explanation:

Goodstone Tire Corporation

Analysis of accepting special order

Sales ($70 x 10,000)                                                                $700,000

Less Variable Expenses :

Direct materials and labor ($45 x 10,000)      $450,000

Variable Factory overhead ($8 x 10,000)         $80,000

Inspection fee                                                   $100,000      ($630,000)

Net Income (Loss)                                                                      $70,000

Conclusion

Goodstone's net operating income will increase by $70,000.