Question

Falcon Co. produces a single product. Its normal selling price is $26 per unit. The variable costs are $16 per unit. Fixed costs are $18,900 for a normal production run of 5,000 units per month. Falcon received a request for a special order that would not interfere with normal sales. The order was for 1,470 units with a special price of $21 per unit. Falcon has the capacity to handle the special order, and for this order, a variable selling cost of $2 per unit would be eliminated. If the order is accepted, what would be the impact on net income

Answer 1

Effect on income= $10,290 increase

Step-by-step explanation:

Giving the following information:

Falcon can handle the special order, and for this order, a variable selling cost of $2 per unit would be eliminated.

Because it is a special order that would not affect current sales, we won't take into consideration the fixed costs.

To calculate the effect on income, we need to use the following formula:

Effect on income= Number of units sold*unitary contribution margin

Effect on income= 1,470*(21 - 14)

Effect on income= $10,290 increase