Question

Branford Inc. reported the following results from the sale of 24,000 units of SR-90:

Sales $ 542,000
Variable manufacturing costs 240,000
Fixed manufacturing costs 144,000
Variable selling costs 53,800
Fixed administrative costs 35,700
Elkhorn Company has offered to purchase 3,400 SR-90s at $15 each. Branford has available capacity, and the president is in favor of accepting the order. The president feels it would be profitable because no variable selling costs will be incurred. The plant manager is opposed because the "full cost" of production is $16. Which of the following correctly notes the change in income if the special order is accepted?
a. $10,200 increase.b. $3,400 increase.c. $3,400 decrease.d. None of the answers is correct.e. $10,200 decrease.

Answer 1

d. None of the answers is correct

$17,000 increase

Step-by-step explanation:

As per the given question the solution is provided below:-

For reaching the change in income if the special order is accepted we need to follow some steps which are as follows:-

Step 1

Variable manufacturing cost per unit = Variable manufacturing costs ÷ Sale units

= $240,000 ÷ 24,000

= $10

Step 2

Cost related with special order = Number of units × Variable manufacturing cost per unit

= 3,400 × $10

= $34,000

Step 3

Income from special order = Number of units × Selling price

= 3,400 × $15

= $51,000

Therefore the Change in income if special order is accepted = Income from special order- Cost related with special order

= $51,000 - $34,000

= $17,000 increase

d. None of the answers is correct the right answer is $17,000 increase.

To reach the change in income if special order is accepted we simply put the values into formula.