A company contemplating the acceptance of a special order has the following unit

Question

A company contemplating the acceptance of a special order has the following unit cost behavior, based on 10000 units:

A foreign company wants to purchase 3300 units at a special unit price of $25. The normal price per unit is $40. In addition, a special stamping machine will have to be purchased for $4000 in order to stamp the foreign company’s name on the product. The incremental income (loss) from accepting the order is

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Explanation / Answer

Answer:-The incremental income from accepting the order is $5900.

Explanation:-1)-

Incremental Revenue 3300 units*$25 per unit = $82500

Less:- Incremental variable cost                        = $72600

     (3300 units*$22 per unit)

Incremental Income                                               $9900

Less:- Extra cost for special order $4000

Net Incremental Income $5900

2)- Fixed cost will not considered for special order hence it is sunk cost.

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