Question

At Bargain Electronics, it costs $35 per unit ($18 variable and $17 fixed) to make an MP3 player at full capacity that normally sells for $50. A foreign wholesaler offers to buy 3,250 units at $24 each. Bargain Electronics will incur special shipping costs of $3 per unit. Assuming that Bargain Electronics has excess operating capacity, indicate the net income (loss) Bargain Electronics would realize by accepting the special order. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Answer 1

by accepting the special order Bargain Electronics realizes a Net Income of $ 9.750

Step-by-step explanation:

Consider the Incremental Costs and Revenues in this decision.

Note : Bargain Electronics has excess operating capacity, this means that Fixed Overheads incurred whether the Special Order is Accepted or not remain the same and thus not relevant in this decision.

Incremental Costs and Revenues Calculation for a Special Order of 3,250 units :

Sales ( 3,250 units × $24) 78,000

Variable Costs ( 3,250 units × $18) (58,500)

Shipping Cost ( 3,250 units × $3) (9,750)

Net Income/(loss) 9.750