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3 years ago

(Algo) Analyzing Special-Order Decision [LO 7-2, 7-3]

Business

1 answer:

Andreas93 [3]3 years ago

6 0

Answer:

Because there is unused capacity, and the effect on income is positive, the offer should be accepted.

Explanation:

Giving the following information:

Lost Mine has offered to buy 2,900 of the US umbrellas for $27 each.

Production costs:

Direct materials $ 12.00

Direct labor 6.00

Variable manufacturing overhead 8.00

<u>Because it is a special offer and there is unused capacity, we will not take into account the fixed costs.</u>

Unitary production cost= $26

Net effect on income= 2,900*(27 - 26)

Net effect on income= $2,900 increase

Because there is unused capacity, and the effect on income is positive, the offer should be accepted.

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