Question

At Sheridan Electronics, it costs $30 per unit ($16 variable and $14 fixed) to make an MP3 player that normally sells for $49. A foreign wholesaler offers to buy 4,570 units at $25 each. Sheridan Electronics will incur special shipping costs of $1 per unit. Assuming that Sheridan Electronics has excess operating capacity, indicate the net income (loss) Sheridan Electronics would realize by accepting the special order.

The special order should be:________

Answer 1

Reject Accept Net Income

order order increase / (decrease)

Revenues $0 $114,250 $114,250

(4570*25)

Cost - variable manufacturing $0 $73,120 ($73,120)

(4570*16)

Shipping $0 $4,570 ($4,570)

(4570*1)

Net Income $0 $36,560 $36,560

So, the special order should be accepted.