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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. 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.
Expert Solution
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
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