Question

Diamond Boot Factory normally sells its specialty boots for $22 a pair. An offer to buy 120 boots for $18 per pair was made by an organization hosting a national event in Norfolk. The variable cost per boot is $8, and special stitching will add another $2 per pair to the cost. Determine the differential income or loss per pair of boots from selling to the organization.

Answer 1

Answer:

Differential income = $960

Explanation:

In a special order decision , the offer should be accepted if the sales revenue from the order is greater than the relevant costs of the special orders.

The relevant costs of the special order = variable cost + additional cost of special stitching machine

                                                                                          $

Sales revenue    (120× $18)                                          2,160      

The relevant costs of the special order

= (120×8) + (120×2)                                                       (1,200)

Differential income                                                         960