Question

It costs Vaughn Company $26 per unit ($18 variable and $8 fixed) to produce its product, which normally sells for $38 per unit. A foreign wholesaler offers to purchase 4800 units at $21 each. Vaughn would incur special shipping costs of $2 per unit if the order were accepted. Vaughn has sufficient unused capacity to produce the 4800 units.

Required:
(a) If the special order is accepted, what will be the effect on net income?

Answer 1

Effect on income= $4,800 increase

Step-by-step explanation:

Giving the following information:

Unitary variable cost= $18

A foreign wholesaler offers to purchase 4800 units at $21 each. Vaughn would incur special shipping costs of $2 per unit if the order were accepted.

Because it is a special order and there is unused capacity, we will not take into account the fixed costs.

Effect on income= 4,800*21 - 4,800*(18 + 2)= $4,800 increase