Question

Maize Company incurs a cost of $35 per unit, of which $19 is variable, to make a product that normally sells for $58. A foreign wholesaler offers to buy 5,400 units at $31 each. Maize will incur additional costs of $3 per unit to imprint a logo and to pay for shipping. Compute the increase or decrease in net income Maize will realize by accepting the special order, assuming Maize has sufficient excess operating capacity. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Answer 1

$48,600 increase

Step-by-step explanation:

Analysis of the Special Order

Sales (5,400 x $31) $167,400

Less Variable Costs ;

Manufacturing (5,400 x $19) $102,600

Selling (5,400 x $3) $16,200 ($118,800)

Contribution $48,600

Note ;

Since Maize has sufficient excess operating capacity, we do not consider fixed costs as these are already incurred whether or not the special order is accepted.

The result shows that by accepting the special order, Maize Company will have additional contribution to cover fixed costs and this in turn increases net income by $48,600.

Therefore,

Increase in net income Maize will realize by accepting the special order is $48,600.