Question

It costs Blakeley Company $22.10 of variable and $2.20 of allocated fixed costs to produce an industrial trash can that normally sells for $31.30. A buyer offers to purchase 2,200 units at $21.00 each. Blakeley has excess capacity and can handle the additional production. What effect will acceptance of the offer have on net income?

Answer 1

Effect on income= $2,420 decrease

Step-by-step explanation:

Giving the following information:

It costs Blakeley Company $22.10 of variable

A buyer offers to purchase 2,200 units at $21.00 each

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

Effect on income= 2,200*(21 - 22.1)

Effect on income= $2,420 decrease

In this case, the company should reject the offer, because the unitary contribution margin is negative.