Question

Concord Corporation manufactures a product with a unit variable cost of $100 and a unit sales price of $181. 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 $125 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 $23000.
b. Income would increase by $125000.
c. Income would decrease by $23000.
d. Income would increase by $25000.

Answer 1

Answer:

d. Income would increase by $25000.

Explanation:

Concord Corporation received a special order to sell 1,000 units at $125 each.

Incremental Sales Revenue = 1,000 * $125

Incremental Sales Revenue = $125,000

Variable Cost per unit = $100

Fixed manufacturing cost = $480,000

To produce required additional units, there will be no change in fixed manufacturing costs. So, cost to produce additional units will change on account of variable manufacturing cost only.

Incremental Cost = $100 * 1,000

Incremental Cost = $100,000

Incremental Net Income = Incremental Sales Revenue - Incremental Cost

Incremental Net Income = $125,000 - $100,000

Incremental Net Income = $25,000