The Real Time Products Company has a monthly plant capacity of 1,500 product uni

Question

The Real Time Products Company has a monthly plant capacity of 1,500 product units. It's predicted operationsfor the year are:

Sales (1,000 units) $51,500

Manufacturing Costs:

Fixed: $18,000

Variable $17

Selling and Administrative expenses:

Fixed: $4,500

Variable (sales comissions) $3

If the company accepts a special order from a customer for 200 units at a selling price of $18 each, how would net income be affected?

If the company accepts the special order and doesn't pay sales commissions, how would net income be affected?

Explanation / Answer

Computaion of Incremental Net Income Incremental sales revene (200X18) 3600 Less: Variable Manufaturing Expenses (200X17) 3400 Incremental Gross profit 200 Less: Fixed Expenses (Irrelevant) 0 Incremental Net Income 200 If, company accepts special order , there is increase in net income of $200 Note: Company has excess capacity, so Fixed costs are irrelevant for special order

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