Question

Bluebird Mfg. has received a special one-time order for 15,000 bird feeders at $3 per unit. Bluebird currently produces and sells 75,000 units at $7.00 each. This level represents 80% of its capacity. These bird feeders would be marketed under the wholesalerâs name and would not affect Bluebirdâs sales through its normal channels. Production costs for these units are $3.50 per unit, which includes $2.25 variable cost and $1.25 fixed cost. If Bluebird accepts this additional business, the incremental cost will be: ____________
a. $45,000.
b. $7,500.
c. $33,750.
d. $38,750.
e. $11,250.

Answer 1

If Bluebird accepts this additional business, the incremental cost will be: c. $33,750.

Using this formula

Incremental cost=Number of order for  feeders× Variable cost

Where:

Number of order for  feeders=15,000 feeders

Variable cost=$2.25

Let plug in the formula

Incremental cost=15,000×$2.25

Incremental cost=$33,750

Inconclusion  if Bluebird accepts this additional business, the incremental cost will be: c. $33,750.

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