Question

Jacoby Company received an offer from an exporter for 25,400 units of product at $18 per unit. The acceptance of the offer will not affect normal production or domestic sales prices. The following data are available: Domestic unit sales price $21 Unit manufacturing costs: Variable 13 Fixed 5 The differential revenue from the acceptance of the offer is

Answer 1

Differential income from the special order= $127,000

Step-by-step explanation:

A company should accept a special order where the order generates additional contribution. i.e where the special order sales exceeds all relevant cost.

The relevant cost for decision to accept the special order are

I Incremental Revenue from the special order

2. incremental variable cost

Contribution per unit = 18-13=5

Total contribution from special order = contribution per unit × units

= 5× 25,400=$127,000

Differential income from the special order= $127,000

Note that whether or not the special order is accepted the fixed manufacturing and fixed operating expenses of would be incurred either way. Therefore , they are not relevant for the decision