Baden Company manufactures a product with a unitvariable cost of $50 and a unit
ID: 2662115 • Letter: B
Question
Baden Company manufactures a product with a unitvariable cost of $50 and a unit sales price of $88. Fixedmanufacturing costs were $240,000 when 10,000 units were producedand sold. The company has a one-time opportunity to sell anadditional 1,000 units at $70 each in a foreign market which wouldnot affect its present sales. If the company has sufficientcapacity to produce the additional units, acceptance of the specialorder would affect net income as follows:
A.
Income would increase by $4,000.
B.
Income would increase by $20,000
C.
Income would decrease by $4,000.
D.
Income would increase by $70,000.
Baden Company manufactures a product with a unitvariable cost of $50 and a unit sales price of $88. Fixedmanufacturing costs were $240,000 when 10,000 units were producedand sold. The company has a one-time opportunity to sell anadditional 1,000 units at $70 each in a foreign market which wouldnot affect its present sales. If the company has sufficientcapacity to produce the additional units, acceptance of the specialorder would affect net income as follows:
A.
Income would increase by $4,000.
B.
Income would increase by $20,000
C.
Income would decrease by $4,000.
D.
Income would increase by $70,000.
Explanation / Answer
Present scene: Contribution pu = Sale Priice pu-var cost pu = 88-50=38pu Total Cont = cont pu x No of units = 38 x 10,000= 380,000 Less Fixed cost 240,000 ----------------------------- Profit = Total Cont-Fixed cost = 140,000 Thus company is already recovering all its Fixed cost at 10,000units., Thus addl units manufactured will add to profit. Addl Cont is 70-50 = 20 x 1000 = $20,000 Thus addl income is $20,000 Ans is B
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