NEED HELP with this question. ACC 2020 Question 3 At Jaymes company, it costs $3

Question

NEED HELP with this question. ACC 2020

Question 3 At Jaymes company, it costs $31 per unit 18 variable and $13 fixed to make a product at full capacity that normally sells for $4 A foreign wholesaler offers to buy 4,229 units at $26 each. Jaymes w ncur special shipping costs of $2 per u nit. Assuming that Jaymes has excess operating capacity, indicate the net income (loss) Jaymes would realize by accepting the special order. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45)) Net Income Reject Order Accept Order Increase (Decrease) Revenues Costs Variable manufacturing Shipping Net income (loss) Should the special order be accepted or rejected? The special order should ba Y accepted rejected LINK TO TEXT

Explanation / Answer

Contribution margin per unit of special order: Selling price - variable cost = 26 - ( 18 + 2) = $ 6

Contribution margin for the special order = 4,229 x 6 = $ 25,374

The current fixed costs of the company are unavoidable allocated fixed costs, and hence are not relevant for decision making. The only relevant cost would be the variable cost and the contribution margin.

If the special order is rejected, Jaymes Company loses out on the additional contribution / net income of $ 25,374.

If the special order on the other hand is accepted, the overall net income of Jaymes Company increases by

$ 25,374.

Hence the special order should be accepted.

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