Special Order The Epsilon Company, a manufacturer of baseball gloves, has enough

Question

Special Order The Epsilon Company, a manufacturer of baseball gloves, has enough idle factory capacity available to accept a short-run special order for 10,000 baseball gloves at a sales price of $50/glove. The normal sales price is $75/glove. Variable production costs are $40/glove, and the fixed production costs are $20/glove. This short-run special order will not displace any of the company's regular sales. What would be the effect on Epsilon's net income if the company accepts the short-run special order?

Explanation / Answer

if company accepted special order, they can earn an additional revenue of $100,000.

Special order sales revenue (10,000*$50) $ 500,000 Less: Variable production cost (10,000*$40) $ 400,000 Increase in net income if special order accepted $ 100,000

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