Your answer is partially correct. Try again. Blue Spruce Manufacturing has an an

Question

Your answer is partially correct. Try again. Blue Spruce Manufacturing has an annual capacity of 80,300 units per year. Currently, the company is making and selling 78,100 units a year. The normal sales price is $103 per unit, variable costs are $65 per unit, and total fixed expenses are $2,000,000. An out-of-state distributor has offered to buy 5,300 units at $75 per unit. Blue Spruce's cost structure should not change as a result of this special order. By how much will Blue Spruce's income change if the company accepts this order? Blue Spruce' net income will decrease by $ if it accepts the special order

Explanation / Answer

Incremental analysis: Incremental revenue of speccial order (5300 units @ 75) 397500 Less: Incremental cost Variable cost of producing the 5300 units 344500 Loss of contribution of 3100 units 117800 (Excess capacity exist at 2200 units. Therefore, loss of sale to regular customer3100 units @ 38 per unt) Nnet decrease in income -64800 Net income DECREASES by $ 64800 is it accepts the order.

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