Question

Yolo Company, which has excess capacity (i.e. it doesn't have to give up producing and selling products in the normal market if it accepts a special order), received a special order for 4,500 units at a price of $16 per unit. Currently, production and sales are anticipated to be 11,000 units without considering the special order. Budget information for the current year follows. Sales $ 231,000 Less: Cost of Goods Sold 165,000 Gross Margin $ 66,000 Cost of goods sold includes $44,000 of fixed manufacturing cost. If the special order is accepted, the company's income will:

Answer 1

$22,500 increase

Step-by-step explanation:

The computation is shown below:

Variable cost per unit is

= ($165,000 - $44,000) ÷ 11,000 units

= $11

And, the Sales price per unit is $16

So, the Profit per unit is

= $16 - $11

= $5 per unit

Now the company income would be

= 4,500 units × $5 per unit

= $22,500 increase

Hence, the company income would be increased by $22,500