Question

Your regular selling price is $40 per unit. Costs are $28 per unit, which consists of $8 direct materials per unit, $10 direct labor per unit, $4 variable overhead per unit, and $6 fixed overhead per unit. Sales are low because of a recession. A large retail chain offered to buy 1,000 units from you at a discounted price of $28. Assume that you have enough spare capacity to fulfill this order. If you accept the special order in the short term, profit will Group of answer choices increase by $6,000 decrease by $12,000 decrease by $6,000 remain the same increase by $12,000

Answer 1

Effect on income= $6,000 increase

Step-by-step explanation:

Because there is an unused capacity and it is a special order, we will not take into account the fixed costs.

Effect on income= total contribution margin

Unitary variable cost= 8 + 10 + 4= $22

Effect on income= 1,000*(28 - 22)

Effect on income= $6,000 increase