Help Save & Exit Elkhorn, Inc, which has excess capacity, received a special ord
ID: 2583885 • Letter: H
Question
Help Save & Exit Elkhorn, Inc, which has excess capacity, received a special order for 4,600 units at a price of $17 per unit Currently, production and sales are anticipated to be 13,000 units without considering the special order. Budget information for the current year follows. Sales $247,860 Less: Cost of goods sold 195,000 52,0ee Gross margin Cost of goods sold includes $26,000 of fixed manufacturing cost.If the special order is accepted, the company's incom will: Multiple Choice increase by $9,200. decrease by $9,200Explanation / Answer
Cost of Goods sold includes $26,000 of fixed manufacturing cost, so the remaining $169,000 ($195,000 - $26,000) will be variable cost
So $169,000 will the Variable Cost of 13,000 Units, So Variable Cost of the product = $13/Unit
Variable Cost = $13 p.u.
It is mentioned that $26,000 is the fixed Manufacturing Cost so it will not Increase or Decrease with increase or decrease in sales, so if we accept the new order then There will be only Variable Cost of $13 per unit.
Increase in Income due to acceptance of Offer = Sales – Variable Cost
= (4,600 Units * $17 per unit) – (4,600 Units * $13 per unit)
= $18,400
Income will increase by $18,400 if we accept the new order.
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