Question

Bluebird manufacturing has received a special one-time order for 15,500 bird feeders at $3.50 per unit. bluebird currently produces and sells 75,000 units at $7.50 each. this level represents 80% of its capacity. production costs for these units are $4.00 per unit, which includes $2.75 of variable costs and $1.75 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:multiple choice

O $54,250 increase.
O $11,625 increase.
O $42,625 increase.
O $7,750 decrease.
O $42,625 decrease.

Answer 1

The effect on income from accepting the special one-time order of bird feeders would be a $210,500 increase.

Step-by-step explanation:

To find the effect on income, we need to calculate the current income and compare it to the income after accepting the special one-time order.

Currently, Bluebird is producing and selling 75,000 units at $7.50 per unit, resulting in a total revenue of $562,500 (75,000 * $7.50).

The total production cost for these units is $300,000 (75,000 * $4.00), leaving a profit of $262,500 ($562,500 - $300,000).

If Bluebird accepts the additional business of 15,500 units at $3.50 per unit, they would generate an additional revenue of $54,250 (15,500 * $3.50).

Since there are no incremental fixed costs, the total production cost for the additional units would be $84,250 (15,500 * $2.75).

This results in a profit of $210,500 ($54,250 - $84,250).

Therefore, the effect on income from accepting the special offer would be an $210,500 increase.