Marston Manufacturing has an annual capacity of 85,000 units per year. Currently
ID: 2541981 • Letter: M
Question
Marston Manufacturing has an annual capacity of 85,000 units per year. Currently, the company is making and selling 78,000 units a year. The normal sales price is $120 per unit, variable costs are $90 per unit, and total fixed expenses are $2,000,000. An out-of-state distributor has offered to buy 12,000 units at $105 per unit. Marston's cost structure should not change as a result of this special order.
By how much will Marston's income change if the company accepts this order?
Open Show Work
Marston’ net income willdecrease increase
by $ if it accepts the special order.Explanation / Answer
Answer
SalesRevenue
$9360000.00
(-)Variablecost
$7020000.00
Contributionmargin
$2340000.00
(-)Fixedexpenses
$2000000.00
NetIncome
$340000.00
Normal Sale
Offer Sale
Total
Units
73000.00
12000.00
85000.00
Sales Revenue
$8760000.00
$1260000.00
$10020000.00
(-)Variable cost
$6570000.00
$1080000.00
$7650000.00
Contribution margin
$2190000.00
$180000.00
$2370000.00
(-)Fixed expenses
$2000000.00
New Net Income
$370000.00
Contribution gain on special order – 12000 units x ($105-$90) = $180,000
(-) Contribution lost of normal sale – (78000 units – 73000 units) x ($120-$90) = $150000
Net INCREASE = 180000 – 150000 = $30,000
SalesRevenue
$9360000.00
(-)Variablecost
$7020000.00
Contributionmargin
$2340000.00
(-)Fixedexpenses
$2000000.00
NetIncome
$340000.00
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