Question

It costs Sunland Company $26 per unit ($18 variable and $8 fixed) to produce its product, which normally sells for $38 per unit. A foreign wholesaler offers to purchase 4400 units at $21 each. Sunland would incur special shipping costs of $2 per unit if the order were accepted. Sunland has sufficient unused capacity to produce the 4400 units. If the special order is accepted, what will be the effect on net income

Answer 1

Effect on income= $4,400 increase

Step-by-step explanation:

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

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

Effect on income= number of units*unitary contribution margin

Effect on income= 4,400 (21 - 18 - 2)

Effect on income= $4,400 increase