Question

At Crane Electronics, it costs $32 per unit ($15 variable and $17 fixed) to make an MP3 player that normally sells for $50. A foreign wholesaler offers to buy 4,400 units at $24 each. Crane Electronics will incur special shipping costs of $2 per unit.
Required:
1. Assuming that Crane Electronics has excess operating capacity, indicate the net income (loss) Crane Electronics would realize by accepting the special order. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Answer 1

Answer:

$30,800

Explanation:

The computation is shown below:

= Sales - variable manufacturing cost - shipping cost

where

Sales is

= 4,400 units × $24

= $105,600

Variable manufacturing cost is

= 4,400 units × $15

= $16,000

And, the shipping cost is

= 4,400 units × $2

= $8,800

Now the net income is

= $105,600 - $16,000 - $8,800

= $30,800

As this amount comes in positive that shows the special order should be accepted