Question

It costs Bramble Corp. $12 of variable and $5 of fixed costs to produce one bathroom scale which normally sells for $35. A foreign wholesaler offers to purchase 4300 scales at $15 each. Bramble would incur special shipping costs of $1 per scale if the order were accepted. Bramble has sufficient unused capacity to produce the 4300 scales. If the special order is accepted, what will be the effect on net income

Answer 1

Effect on income= $8,600 increase

Step-by-step explanation:

Giving the following information:

Unitary variable cost= 12 + 1= $13

Units sold= 4,300

Selling price= $15

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

Effect on income= units sold*unitary contribution margin

Effect on income= 4,300*(15 - 13)

Effect on income= $8,600 increase