Question

It costs Marigold Company $26 per unit ($18 variable and $8 fixed) to produce its product, which normally sells for $38 per unit. A foreign wholesaler offers to purchase 3400 units at $21 each. Marigold would incur special shipping costs of $2 per unit if the order were accepted. Marigold has sufficient unused capacity to produce the 3400 units. If the special order is accepted, what will be the effect on net income?

Answer 1

An increase of $3,400

Step-by-step explanation:

Well as you can see in the text, the variable cost of producing the goods is $18, and the shipping cost per unit would be $2, we can ignore fixed cost since those are already covered by the units sold in our regular market, so the total cost would be $20 with the variable and shipping cost, we withdraw the variable and shipping cost from the total price of $21, and that owuld leave a $1 profit per unit, multiplied by 3,400 units that the client wants, the result would be an increase of $3,400 dollars on net income.