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It costs Sheffield Corp
It costs Sheffield Corp. $12 of variable and $5 of fixed costs to produce one bathroom scale which normally sells for $35. A foreign wholesaler offers to purchase 2000 scales at $15 each. Garner would incur special shipping costs of $1 per scale if the order were accepted. Sheffield has sufficient unused capacity to produce the 2000 scales. If the special order is accepted, what will be the effect on net income?
Expert Solution
Computation of Effect on Net Income if the Special Order is Accepted:
| Particulars | Amount (in $) |
| Incremental Revenues | 30000 |
| (2,000 * $15) | |
| Less: Incremental cost | |
| Cost of goods sold | 24000 |
| (2,000 * $12) | |
| Shipping Costs | 2000 |
| (2,000 * $1) | |
| Net Income | 4000 |
| Fixed costs are not considered because they have not charged for Production | |
| Net Income = $4,000 Increase |
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