Question

It costs Bonita Company $17.9 of variable costs and $8.0 of fixed costs to produce its product that sells for $39. Carla Vista Company, a foreign buyer, offers to purchase 3800 units at $23.1 each. If the special offer is accepted and produced with unused capacity, net income will:__________

Answer 1

Decrease by $10,640

Step-by-step explanation:

The unused capacity ordinarily will not change the fixed component of cost but will increase the variable cost hence the net income increase or decrease is know as net contribution margin. However, given the fixed cost as a unit cost, it will be affected by the offer of accepted.

Net income is the result of sales less cost where the cost is made of the fixed and variable portions.

Net income increase/(decrease)

= 23.1 (3800) - 3800(17.9 + 8)

=3800( 23.1 - 25.9)

= ($10,640)

Accepting the offer will result in a decrease in net income