Question

At Bargain Electronics, it costs $33 per unit ($15 variable and $18 fixed) to make an MP3 player that normally sells for $54. A foreign wholesaler offers to buy 4,520 units at $26 each. Bargain Electronics will incur special shipping costs of $1 per unit. Assuming that Bargain Electronics has excess operating capacity, indicate the net income (loss) Bargain Electronics would realize by accepting the special order

Answer 1

Answer and Explanation:

The computation of the net income or loss is shown below:

Particulars Reject Order Accept order Net Income Increase (Decrease)

Revenues $0 $117,520 $117,520

(4520 units × $26)

Costs-Manufacturing $0 -$67,800 -$67,800

(4520 units $15)

Shipping $0 -$4,520 -$4,520

(4520 units × $1)

Net Income $0 $45,200 $45,200

Therefore the special order should be accepted