Question

It costs Galiente 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. Galiente 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

Answer: Increase in net income by $20,000.

Step-by-step explanation:

If the special order is accepted,

Net income = Revenues - Manufacturing costs - Shipping cost

= (5,000 units × $36) - (5,000 units × $27) - (5,000 units × $5)

= $180,000 - $135,000 - $25,000

= $20,000

The special order should be Accepted. so they can earn an additional income of $20,000