At Bargain Electronics, it costs $32 per unit ($19 variable and $13 fixed) to ma

Question

At Bargain Electronics, it costs $32 per unit ($19 variable and $13 fixed) to make an MP3 player at full capacity that normally sells for $46. A foreign wholesaler offers to buy 3,180 units at $26 each. Bargain Electronics will incur special shipping costs of $4 per unit. Assuming that Bargain Electronics has excess operating capacity, indicate the net income (loss) Bargain Electronics would realize by accepting the special order. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Reject Order Accept Order Net Income Increase (Decrease) Revenues $ $ $ Costs-Manufacturing Shipping Net income $ $ $ The special order should be

Explanation / Answer

Statement of Incremental Profit If Special Order is Accepted Incremental Sales Sales to Special Order - 3180 Units X $26           82,680 Incremental Costs Vatiable Costs - 3180 Units X $19         (60,420) Shipping Costs - 3180 Units X $4         (12,720) Net Incremental Profit              9,540 Order should be Accepted as it will increase the Profit by $9540

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