Question

bluebird manufacturing has received a special one-time order for 15,100 bird feeders at $3.10 per unit. bluebird currently produces and sells 75,000 units at $7.10 each. this level represents 80% of its capacity. production costs for these units are $3.60 per unit, which includes $2.35 of variable costs and $1.35 of fixed costs. if the special offer is accepted, there will be no incremental fixed cost. if bluebird accepts this additional business, the effect on income will be:

Answer 1

The net effect on the income of bluebird manufacturing will be an increase of $11325 due to the fulfilment of the special offer.

The break-even analysis is used by the production management accountants to evaluate the production process and expected sales. It helps to evaluate contribution margin, profit volume ratio, units to be sold to recover that total cost and others.

Selling price per unit = $3.10

Number of units to produce = 15100

Cost of production per unit = $2.35

Fixed cost = $1.35

Capacity of production = 80%

Total revenue= 15,100 * 3.10 = 46,810

Production cost = 15,100 * 2.35 = 35485

Income = 46,810 - 35485 = 11325 increase

So, there will be an increase of $11325 in the net income

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