Question

It costs Lannon Fields $28 of variable costs and $12 of allocated fixed costs to produce an industrial trash can that sells for $60. A buyer in Mexico offers to purchase 3,000 units at $36 each. Lannon Fields has excess capacity and can handle the additional production. What effect will acceptance of the offer have on net income?

Answer 1

Effect on income= $24,000

Step-by-step explanation:

Giving the following information:

It costs Lannon Fields $28 of variable costs and $12 of allocated fixed costs to produce an industrial trash can that sells for $60. A buyer in Mexico offers to purchase 3,000 units at $36 each. Lannon Fields has excess capacity and can handle the additional production.

Because it is a special offer and there is unused capacity, we will not have into account the fixed costs.

Effect on income= (36 -28)*3,000= $24,000