Radar Company sells bikes for $500 each. The company currently sells 4,900 bikes

ID: 2482753 • Letter: R

Question

Radar Company sells bikes for $500 each. The company currently sells 4,900 bikes per year and could make as many as 5,000 bikes per year. The bikes cost $295 each to make; $190 in variable costs per bike and $105 of fixed costs per bike. Radar received an offer from a potential customer who wants to buy 775 bikes for $360 each. Incremental fixed costs to make this order are $54,000. No other costs will change if this order is accepted. Compute Radar's additional income (ignore taxes) if it accepts this order.

Explanation / Answer

For 775 Units

Incremental Amount per Unit

Incremental Fixed Cost

Incremental income form business

Sales

$ 360

$ 279,000

Variable Cost

$ 190

$ 147,250

Contribution Margin

$ 170

$ 131,750

Fixed Cost

$ 54,000

Incremental income (loss) from new business

$ 77,750

The company should

Accept