Green Lawn Company is considering a special order for 1,000 new sprinkler system
ID: 2499341 • Letter: G
Question
Green Lawn Company is considering a special order for 1,000 new sprinkler systems from a new customer, a foreign distributor. The foreign distributor is offering to purchase the sprinkler systems for $1,200 each from Green Lawn Company. Green Lawn Company currently sells them for $2,000. Green Law Company has excess capacity. It costs Green Lawn Company $1,000 in variable costs and $500 in fixed costs for each unit. They will not incur any additional fixed costs due to this order. If Green Lawn Company accepts this order, Net Income will be affected by how much?
Increase by $200,000
Increase by $300,000
Decrease by $200,000
Decrease by $300,000
Explanation / Answer
Ans. The net income will be increased by $ 200000.
The green law company has excess capacity to accept the order. It will not have to incure the extra fixed cost . So fixed cost will be avoided and only variable cost to be incurred.
Sell price per unit $1200
Less : Variable Cost per unit $1000
Profit per unit $200
Total Profit = $200 X 1000 unit order
= $ 200000
Total profit increased by $ 200000
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