Franklin Company produces 40,000 printers per month, which is 80% of plant capac

Question

Franklin Company produces 40,000 printers per month, which is 80% of plant capacity. Variable manufacturing costs are $80 per unit, and fixed manufacturing costs are $1,200,000, or $30 per unit. The printers are normally sold directly to retailers at $150 each. Franklin has an offer from a foreign wholesaler to purchase an additional 4,000 printers at $100 per unit. Acceptance of the offer would not affect normal sales of the product, and the additional units can be manufactured without increasing plant capacity. What is the amount of increase (decrease) to net income if Franklin accepts the order?

A : ($ 40,000)

B : $80,000

C : $40,000

D : ($200,000)

Explanation / Answer

Total variable costs of manufacturing the printer = $80

Foreign wholesaler offers to purchase an 4,000 printers at $100 per unit.

Please notet that we would not consider the fixed costs while evaluating the special orders.

the amount of increase to net income if Franklin accepts the order =(100 - 80) 4000 = $80,000 (OPTION B)

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