Question

Bluebird manufacturing has received a special one-time order for 15,600 bird feeders at $3.60 per unit. bluebird currently produces and sells 75,000 units at $7.60 each. this level represents 80% of its capacity. production costs for these units are $4.10 per unit, which includes $2.85 of variable costs and $1.85 of fixed costs. if the special offer is accepted, there will be no incremental fixed cost. if bluebird accepts this additional business, the effect on income will be:

a. $12,000 increase.

b. $8,250 decreases.

c. $34,500 decreases.

d. $46,500 increase.

e. $34,500 increase.

Answer 1

To calculate the impact on income from accepting the special order at Bluebird Manufacturing, subtract the total variable cost from the revenue of the order. The income increases by $11,700, making option (a) $12,000 increase the closest available answer.

Step-by-step explanation:

To determine the effect on income for Bluebird Manufacturing if they accept the special order for 15,600 bird feeders at $3.60 per unit, we need to calculate the incremental profit or loss from this order.

Since fixed costs do not change, we will only consider variable costs and the special order price.The variable cost per unit is $2.85, so for 15,600 units, the total variable cost will be 15,600 units × $2.85/unit = $44,460.

The revenue from the special order will be 15,600 units × $3.60/unit = $56,160. To find the impact on income, subtract the total variable cost from the revenue: $56,160 - $44,460 = $11,700. Since the result is a positive number, income will increase by $11,700. Therefore, the closest answer choice to our calculation is (a) $12,000 increase.