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Homework answers / question archive / It costs Lannon Fields $28 of variable costs and $12 of allocated fixed costs to produce an industrial trash can that sells for $60
It costs Lannon Fields $28 of variable costs and $12 of allocated fixed costs to produce an industrial trash can that sells for $60. A buyer in Mexico offers to purchase 3,000 units at $36 each. Lannon Fields has excess capacity and can handle the additional production. What effect will acceptance of the offer have on net income?
Computation of the effect on net income due to acceptance of the offer:-
Contribution margin = Sales price - Variable costs
= (3,000 * $36) - (3,000 * $28)
= $108,000 - $84,000
= $24,000
Hence, the net income will increase by $24,000 due to acceptance of the offer.
