Aurora Enterprises incurs costs of $38 per unit ($27 variable and $11 fixed) to

Question

Aurora Enterprises incurs costs of $38 per unit ($27 variable and $11 fixed) to make a product that normally sells for $56. A wholesaler offers to buy 3,500 units at $36 each. This special order will result in additional shipping costs of $1.15 per unit. Assuming Aurora has adequate manufacturing capacity, it should

A : reject the offer because it will lead to a net loss of $7,000.

B : accept the offer because it will produce net income of $31,500.

C : accept the offer because it will produce net income of $27,475.

D : reject the offer because it will lead to a net loss of $11,025.

Explanation / Answer

Total 3500 units Selling Price 56 196000 Variable costs 27 94500 Fixed Cost 11 38500 Net Income 18 63000 If Purchased Selling Price 196000 Purchase Price 36 126000 Additional Shipping Cost 1.15 4025 Fixed Cost 38500 Net Income 27475 the offer should be accepted The correct option is C : accept the offer because it will produce net income of $27,475.

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