Question

It costs Coronado Company $26 per unit ($18 variable and $8 fired to produce its product, which normally sells for $38 per unit. A foreign wholesaler offers to purchase 4200 units at $2 each Coronado would incur special shipping costs of $2 per unit If the order were accepted. Coronado has sufficient unused capacity to produce the 4200 units. If the special order is accepted, what will be the effect on net income? a.$75600 increase b.$4200 decrease c.$4200 increase d.$12600 increase

Answer 1

By accepting the special order, Coronado Company would see an increase in net income by $8,400 since the incremental revenue exceeds the incremental costs associated with the order.

Step-by-step explanation:

To calculate the effect on net income if Coronado Company accepts the special order, we must consider the incremental costs and revenues from the order.

The company's variable cost is $18 per unit, and there will be an additional special shipping cost of $2 per unit, making the total variable cost $20 per unit. The order is for 4200 units at $22 each, leading to total revenue of $92,400.

Subtracting the total variable cost ($20/unit x 4200 units = $84,000) from the total revenue gives us the effect on net income: $92,400 - $84,000 = $8,400 increase.