Question

Braizen, Inc. produces a product with a $30 per-unit variable cost and an $80 per-unit sales price. Fixed manufacturing overhead costs are $100,000. The firm has a one-time opportunity to sell an additional 1,000 units at $60 each that would not affect its current sales. Assuming the company has sufficient capacity to produce the additional units, how would the acceptance of the special order affect net income?

Answer 1

Net income will increase by $30,000

Step-by-step explanation:

In this case the company has already made its regular sales and charged the entire fixed cost, also provided that the additional units can be produced, as the company has sufficient capacity, which means no additional fixed cost will be incurred. In that case, entire contribution margin from this sale will be added to increase the net income from regular sales.

Special order quantity = 1,000 units

Contribution= $60 - $30 = $30 per unit.

Total contribution from special order = 1,000 X $30 = $30,000

Now by this amount of $30,000 net income will increase.