Question

It costs bonita industries $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 3000 units at $30 each. bonita industries has excess capacity and can handle the additional production. what effect will acceptance of the offer have on net income?

Answer 1

To calculate the effect of the acceptance of the offer on net income, we need to calculate the profit from the opportunity.

The revenue per unit is shall be $30 and the relevant cost per unit shall be the variable cost $28

Hence the peofit per unit shall be = Revenue - Relevant cost = $30-$28 = $2 per unit

There are 3000 units, hence the net profit from this opportunity shall be = 3000 units * $2 = $6000

Hence, we can say that the profit shall increase by $6,000