Question

Diamond Boot Factory normally sells their specialty boots for $375 a pair. An offer to buy 100 boots for $275 per pair was made by an organization hosting a national event in Norfolk. The variable cost per boot is $250 and special stitching will add another $20 per pair to the cost.

Determine the differential income or loss per pair of boots from selling to the organization.

Answer 1

Answer:

$5

Explanation:

Differential revenue:

Revenue per pair of boots $275

Differential costs:

Variable manufacturing costs $(250)

Additional decoration (20) (270)

Differential profit from accepting special order($275-$270) $5

Therefore the differential income or loss per pair of boots from selling to the organization will be $5 which means Diamond Boot Factory should accept the special order.

Answer 2

Answer:

incremental income of $ 500 will result from the special offer.

Explanation:

Consider the incremental costs and revenues resulting from accepting the special offer.

Sales (100×$275)                                27,500

Variable cost (100×$250)                  (25,000)

Special Stitching  (100×$20)               (2,000)

Net Income/Loss                                      500

Therefore an incremental income of $ 500 will result from the special offer.