Question

Radar company sells bikes for $460 each. the company currently sells 4,150 bikes per year and could make as many as 4,480 bikes per year. the bikes cost $240 each to make: $185 in variable costs per bike and $55 of fixed costs per bike. radar receives an offer from a potential customer who wants to buy 330 bikes for $440 each. incremental fixed costs to make this order are $60 per bike. no other costs will change if this order is accepted.

(a) compute the income for the special offer.

Answer 1

To calculate the income from Radar Company's special offer, we subtracted the incremental costs of producing 330 additional bikes ($80,850) from the revenue of selling them at $440 each ($145,200), resulting in an additional income of $64,350.

Step-by-step explanation:

Calculating Income for Special Offer

When Radar Company receives a special offer from a customer to buy 330 bikes at $440 each, we need to calculate the incremental profit or loss that accepting the offer would bring. Since only the incremental fixed costs of $60 per bike would be added and no other costs would change, we need to look at the marginal income. The incremental costs for manufacturing the 330 bikes are 330 bikes × ($185 variable costs + $60 additional fixed costs) = 330 × $245 = $80,850. The revenue from the special offer is 330 bikes × $440 = $145,200.

To find the income from the special offer, subtract the incremental costs from the revenue: $145,200 - $80,850 = $64,350. Therefore, accepting the special offer would generate an additional income of $64,350 for Radar Company.

Answer 2

To calculate the income from the special offer, multiply the number of bikes in the order by the selling price per bike to find total revenue, and then subtract the total cost, which includes variable and additional fixed costs specific to the order. The resulting income from the special offer is $46,200.

Step-by-step explanation:

The question provided requires calculating the income from a special order for a company that sells bikes. To compute the income, we need to consider the incremental costs and revenues associated with the special order. The bikes are sold for $440 each, and the cost to make them includes both variable costs and additional fixed costs specific to this order ($240 + $60 = $300 per bike).

First, we calculate the total revenue from the special order which is 330 bikes × $440 per bike. Then, we calculate the total cost associated with the order which is 330 bikes × $300 per bike. The income for the special offer is the difference between the total revenue and the total cost.

Total Revenue = 330 × $440 = $145,200

Total Cost = 330 × $300 = $99,000

Income from Special Offer = Total Revenue - Total Cost = $145,200 - $99,000 = $46,200.