Question

It costs Bonita Industries $12 of variable and $5 of fixed costs to produce one bathroom scale which normally sells for $35. A foreign wholesaler offers to purchase 3100 scales at $15 each. Garner would incur special shipping costs of $1 per scale if the order were accepted. Bonita has sufficient unused capacity to produce the 3100 scales. If the special order is accepted, what will be the effect on net income?

a. $46500 increase.
b. $6200 increase.
c. $6200 decrease.
d. $9300 decrease.

Answer 1

Effect on income= $6,200 increase

Step-by-step explanation:

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

Total unitary variable cost= 12 + 1= $13

Selling price per unit= $15

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= 3,100*(15 - 13)

Effect on income= $6,200 increase