Specialty Light Bulbs anticipates selling 3,000 light bulbs this year at a price

Question

Specialty Light Bulbs anticipates selling 3,000 light bulbs this year at a price of $16 per bulb. It costs Specialty $12 in variable costs to produce each light bulb, and the fixed costs for the firm are $10,000. Specialty has an opportunity to sell an additional 1,000 bulbs next year at the same price and variable cost, but by doing so the firm will incur an additional fixed cost of $3,000. Should Specialty produce and sell the additional bulbs? (If an amount reduces the account balance then enter with negative sign, e.g. -125.)

The additional sales would change Specialty

Explanation / Answer

Total light bulbs sold now = 4000

Sales Revenue: New= 4000 * 16 = 64000; Old = 3000 * 16 = 48000

Variable costs: New = 4000 * 12 = 48000; Old = 3000 * 12 = 36000

Total fixed costs: New = 10000 + 3000 = 13000; Old = 10000

EBIT: New = 64000 - 48000 - 13000 = 3000; Old = 48000 - 36000 - 10000 = 2000

Change in EBIT = 1000

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