Question

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 4500 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 4500 scales. If the special order is accepted, what will be the effect on net income?

Answer 1

If Sheffield Corp. accepts the special order to produce 4500 bathroom scales at $15 each, the effect on net income would be an increase of $9,000.

Step-by-step explanation:

If Sheffield Corp. accepts the special order to produce 4500 bathroom scales at $15 each, the effect on net income can be calculated. The total revenue from the order would be the number of scales multiplied by the selling price: 4500 x $15 = $67,500. The total variable cost to produce the scales would be the number of scales multiplied by the variable cost per scale: 4500 x ($12 + $1) = $58,500. The fixed costs are irrelevant since they do not change with the order. The net income from the special order would be the total revenue minus the total variable cost: $67,500 - $58,500 = $9,000.