Question

It costs HHI Company $7 of variable costs and $3 of fixed costs to produce its product at full capacity. However, the company currently has unused capacity. The product sells for $15. Burlington Company offers to purchase 3,000 units at $9 each. HHI will incur special shipping costs of $2.50 per unit. If the special offer is accepted and produced with unused capacity, net income will:

Answer 1

The company's income will decrease in $1,500

Step-by-step explanation:

Giving the following information:

Burlington Company offers to purchase 3,000 units at $9 each. HHI will incur special shipping costs of $2.50 per unit. HHI Company $7 of variable costs.

The company has unused capacity, so we will not have into account the fixed costs.

Total variable cost= 7 + 2.5= 9.5

Selling price= 9

Marginal contribution= -0.5

Effect in income= -0.5*3000= $-1,500