Question

At Bargain Electronics, it costs $30 per unit ($20 variable and $10 fixed) to make an MP3 player that normally sells for $55. A foreign wholesaler offers to buy 4,960 units at $24 each. Bargain Electronics will incur special shipping costs of $3 per unit. Assuming that Bargain Electronics has excess operating capacity.

Required:
Indicate the net income (loss) Bargain Electronics would realize by accepting the special order.

Answer 1

Computing the net income or loss if the company B realized the special order as given below:

Reject order Accept order Net Income

Increase(Decrease)

Revenues 0 $ 1,19,040 $ 1,19,040

Cost : Manufacturing 0 - $ 99,200 - $ 99,200

Shipping 0 - $ 14,880 - $ 14,880

Net Income 0 $ 4960 $ 4960