Radar Company sells bikes for $300 each. The company currently sells 3,750 bikes

Question

Radar Company sells bikes for $300 each. The company currently sells 3,750 bikes per year and could make as many as 5,000 bikes per year. The bikes cost $225 each to make; $150 in variable costs per bike and $75 of fixed costs per bike. Radar received an offer from a potential customer who wants to buy 750 bikes for $250 each. Incremental fixed costs to make this order are $50,000. No other costs will change if this order is accepted. Compute Radar’s additional income (ignore taxes) if it accepts this order.

Explanation / Answer

Incremental Amount per Unit Incremental Fixed Costs Incremental Income from New Business Sales(750 units @ $250) $250 $187,500 Variable cost(750 units @ $150) $150 $112,500 Contribution margin $100 $75,000 Fixed costs $50,000 $50,000 Incremental income (loss) from new business $25,000 The company should Accept the order

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