Question

Felix, Inc., which has excess capacity, received a special order for 5,000 units at a price of $15 per unit. Currently, production and sales are anticipated to be 10,000 units without considering the special order. Budget information for the current year follows. Sales $210,000 - Cost of goods sold 155,000 Gross margin 55,000 Cost of goods sold includes $30,000 of fixed manufacturing cost. If the special order is accepted, will the company's income be increased or decreased

Answer 1

$12,500 increase

Step-by-step explanation:

The computation of the company income increased or decreased in the case of the special order accepted is shown below:

But before that we need to determine the variable cost of goods sold which is

The Variable cost of goods sold for 10,000 units is

= Total cost of goods sold - Fixed manufacturing cost

= $155,000 - $30,000

= $125,000

Now

Variable cost of goods sold for 5,000 units is

= $125,000 × 1 ÷ 2

= $62,500

And,

Special order size = 5,000 units

Selling price per unit in the special order = $15

So, the company income increased or decreased is

Sales (5,000 units × $15) $75,000

Less Variable cost of goods sold -$62,500

Net income $12,500

Therefore the net income is increased by $12,500 and in this, the fixed cost is not relevant so we do not considered it