Radar Company sells bikes for $440 each. The company currently sells 5,250 bikes

Question

Radar Company sells bikes for $440 each. The company currently sells 5,250 bikes per year and could make as many as 5,000 bikes per year. The bikes cost $255 each to make: $160 in varlable costs per bike and $95 of fixed costs per bike. Radar received an offer from a potential customer who wents to buy 850 bikes for $390 each. Incremental fixed costs to make this order are $44,000. No other costs will change If this order is accepted Compute Redars additional income ignore taxes) if it accepts this order Amount per Fixed CostsBusiness Income from Neww Unit Contrbution margin $ Paxed coats Incremental income (loss) from new business The company should Prev 7 f 16 Next>

Explanation / Answer

It was given that company sells 5250 bikes and make 5000 bikes. It is not possible to sell more than what we can produce. So the sentence is understood as additional production capacity of 5000 bikes.

Incremental amount per unit Incremental Fixed cost Incremental Income from new Busines Sales 390 331500 Variable cost 160 136000 Contribution Margin 230 195500 Fixed costs 44000 44000 Incremental Income 151500 The company should ACCEPT

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