Question

It costs Calient Company $46 per unit ($27 variable and $19 fixed) to produce its product, which normally sells for $58 per unit. A Brazilian wholesaler offers to purchase 5,000 units at $36 each. Client would incur special shipping costs of $5 per unit if the order were accepted. Galiente has sufficient unused capacity to produce the 5,000 units. If the special order is accepted, what will be the effect on net income?

Answer 1

The effect on net income will be $25,000, meaning the company will lose $25,000.

Step-by-step explanation:

The Wholesaler offers = 5000×$36

= $180,000

Special shipping cost = 5000×$5

= $25,000

but the actual cost per unit = 5000×$46

= $230,000

The effect on the net income = $230,000 - $180,000 - $25,000

= $25,000

Therefore, the effect on net income will be $25,000. this means the company will lose $25,000.