Question

It costs Garner Company $12 of variable and $5 of fixedcosts to produce one bathroom scale which normally sells for $35. Aforeign wholesaler offers to purchase 2,000 scales at $15 each.Garner would incur special shipping costs of $1 per scale if theorder were accepted. Garner has sufficient unused capacity toproduce the 2,000 scales. If the special order is accepted, whatwill be the effect on net income?

A. $6,000 decrease
B. $4,000 decrease
C. $30,000 increase
D. $4,000 increase

Answer 1

D. $4,000 increase

Step-by-step explanation:

Net Income = Sales revenue - Variable costs - Special costs (for executing this order)

15 X 3,000 - 12 X 3,000 - 1 X 3,000

Or, Net Income = 30,000 - 24,000 - 2,000

Or, Net Income = 4,000

Thus, option D is the correct answer.