Radar Company sells bikes for $450 each. The company currently sells 4,750 bikes

Question

Radar Company sells bikes for $450 each. The company currently sells 4,750 bikes per year and could make as many as 5,000 bikes per year. The bikes cost $225 each to make: $185 in variable costs per bike and $40 of fixed costs per bike. Radar received an offer from a potential customer who wants to buy 850 bikes for $400 each. Incremental fixed costs to make this order are $44,000. No other costs will change if this order is accepted. Compute Radar's additional income (ignore taxes) if it accepts this order. Incremental IncrementalIncremental Amount per Fixed Income from New Unit Costs Business Contribution margin Incremental income (loss) from new business The company should

Explanation / Answer

340,000 (850 * $400)

Incremental amount per unit ($) Incremental fixed costs ($) Incremental income from new business ($) Sales 400

340,000 (850 * $400)

Variable costs 185 157,250 (850 * $185) Contribution margin 215 182,750 (850 * $215) Fixed costs 44,000 44,000 Incremental income (loss)from new business $138,750 The company should Accept the order.

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