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Homework answers / question archive / Ag2-y6R Company has just obtained a request for a special order of 10,000 units to be shipped at the end of the month at a selling price of $19 each

Ag2-y6R Company has just obtained a request for a special order of 10,000 units to be shipped at the end of the month at a selling price of $19 each

Accounting

Ag2-y6R Company has just obtained a request for a special order of 10,000 units to be shipped at the end of the month at a selling price of $19 each. The company has a production capacity of 90,000 units per month. At present, the company is selling 83,000 units per month through regular channels at a selling price of $22 each. For these regular sales, the cost for one unit is: 
variable production costs   $8.40 fixed production costs   $3.30 variable selling expenses   $2.70 
Ag2-y6R Company will not incur any selling expenses on the special order units. However, the special order units will require an additional shipping cost of $0.30 per unit. 
Calculate the amount by which Ag2-y6R Company's net income will increase if they accept the special order. 
 

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If Samuel accepts order of 10,000 units when it's current sales is 83,000 units it will have to forgoe 3,000 units of local sales.

Variable production cost: $8.40

Add variable selling expense: $2.70

Total variable costs: $11.10

 

Special order:

Variable cost: $8.40 + 0.30 = $8.70

Sale price per units: $19

Total profit: 10,000*($19-$8.70) = $103,000

Opportunity loss for 3000 units

= 3,000* ($22-$11.10)

= $32,700

 

Overall gain: ($103,000 - $32,700) = $70,300