Baden Company manufactures a product with a unitvariable cost of $50 and a unit
ID: 2479763 • Letter: B
Question
Baden Company manufactures a product with a unitvariable cost of $50 and a unit sales price of $88. Fixedmanufacturing costs were $240,000 when 10,000 units were producedand sold. The company has a one-time opportunity to sell anadditional 1,000 units at $70 each in a foreign market which wouldnot affect its present sales. If the company has sufficientcapacity to produce the additional units, acceptance of the specialorder would affect net income as follows:
a)income would decrease by 4,000
b) income would increase by 4,000
c) income would increase by 70,000
d) income would increase by 20,000
Explanation / Answer
Unit Variable Cost is $50
Unit Sales Price is $88
Fixed Costs $240, 000
Sales price $70
No of units = 1,000 units
Total Sales = $70, 000
Total Variable costs(50 x1,000) = $50 ,000
Net Income= $20, 000
Fixed Costs remain constant and irrelevant for decision making.
D. Income would increase by $20,000
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