Answer:
a) <em>Net income using incremental analysis is </em> $692
b) PINA should accept the order because it will increase its net income by $692
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Explanation:
The relevant cash flows for decision to accept or reject the special order are
I. the incremental contribution from of producing 5,350 units
2. The incremental fixed cost- 45,374
Note that whether or not the special order is accepted the fixed cost of manufacturing would be incurred either way.
Contribution per unit =Selling price - Variable cost
Variable production cost per unit = total variable cost / units
= (10,945 + 29651 + 21094)/19,900
=$3.1
Variable cost per unit of sale = $3.1 + $0.35 = $3.45
a) Incremental Analysis
<em>Change in Net Income: $</em>
I<em>ncremental contribution :</em>
( 4.77 - 3.45) × 5,350 = 7,062
<em>Increase in Fixed cost</em> :
(45,374 - 39,004) <u>( 6370)</u>
<em>Net income </em><em><u> 692</u></em>
<em><u>b) </u></em> PINA should accept the order because it will increase its net income by $692
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