Seville Company manufactures a product with a unit variable cost of $42 and a un

Question

Seville Company manufactures a product with a unit variable cost of $42 and a unit sales price of $75. Fixed manufacturing costs were $80,000 when 10,000 units were produced and sold, equating to $8 per unit. The company has a one time opportunity to sell an additional 2,000 units at $55 each in an international market which would not affect its present sales. The company has sufficient capacity to produce the additional units. How much is the relevant income effect of accepting the special order?

Explanation / Answer

relevant income effect of accepting the special order is

Income increases by 2,000 x ( 55 - 42) = $26000

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