Do It! Review 12-2 Do It! Review 12-2 Sarasota Company incurs a cost of $34.53 p
ID: 2402668 • Letter: D
Question
Do It! Review 12-2
Do It! Review 12-2
Sarasota Company incurs a cost of $34.53 per unit, of which $20.63 is variable, to make a product that normally sells for $57.37. A foreign wholesaler offers to buy 5,600 units at $30.94 each. Sarasota will incur additional costs of $2.98 per unit to imprint a logo and to pay for shipping. Compute the increase or decrease in net income Sarasota will realize by accepting the special order, assuming Sarasota has sufficient excess operating capacity. (If amount decreases net income then enter the amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)Reject Accept Net Income
Increase (Decrease) Revenues $ $ $ Costs $ Net income $ $ $
Should Sarasota Company accept the special order?
Sarasota company should
AcceptReject
the special order.Explanation / Answer
Answer
Unit
Cost per unit
Amount
Revenues if accepted
5600
$ 30.94
$ 173,264.00
Costs if accepted:
General Variable cost
5600
$ 20.63
$ 115,528.00
Addition extra cost
5600
$ 2.98
$ 16,688.00
Total cost
5600
$ 23.61
$ 132,216.00
----Fixed cost will not be relevant
Reject
Accept
Net Income Increase ( Decrease)
Revenues
$ -
$ 173,264.00
$ 173,264.00
Costs
$ -
$ 132,216.00
$ (132,216.00)
Net income
$ -
$ 41,048.00
$ 41,048.00
Since the Net Income is showing “Increase” of $ 41,048, the Offer SHOULD BE ACCEPTED.
Unit
Cost per unit
Amount
Revenues if accepted
5600
$ 30.94
$ 173,264.00
Costs if accepted:
General Variable cost
5600
$ 20.63
$ 115,528.00
Addition extra cost
5600
$ 2.98
$ 16,688.00
Total cost
5600
$ 23.61
$ 132,216.00
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