Question

At Bargain Electronics, it costs $33 per unit ($15 variable and $18 fixed) to make an MP3 player that normally sells for $54. A foreign wholesaler offers to buy 4,520 units at $26 each. Bargain Electronics will incur special shipping costs of $1 per unit. Assuming that Bargain Electronics has excess operating capacity, indicate the net income (loss) Bargain Electronics would realize by accepting the special order

Answer 1

Answer and Explanation:

The computation of the net income or loss is shown below:

Particulars   Reject Order   Accept order Net Income  Increase (Decrease)

Revenues  $0                    $117,520           $117,520

                                     (4520 units × $26)

Costs-Manufacturing  $0 -$67,800              -$67,800

                                      (4520 units  $15)

Shipping                   $0 -$4,520               -$4,520

                                         (4520 units × $1)

Net Income                     $0     $45,200                $45,200

Therefore the special order should be accepted