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Bluebird Mfg
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 wholesaler's name and would not affect Bluebird's 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) $11,250.
C) $38,750.
D) $7,500.
E) $33,750.
Expert Solution
Answer:
Option B - $11250
Step-by-step explanation
Answer -
Option B - 11250
W.N. 1 - Current Production = 75000 units
Current Capacity Utilization = 80%
Therefore,
Actual full Capacity = 75000 / 80%
= 93750
W.n.2
New order of 15000 units shall not increase fixed cost only variable cost per unit will be incurred.
Sales ( 15000 × $3) = $45000
Less Variable Cost = $ 33750
( 15000 × 2.25)
Net Income =$ 11250
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