Question

Redbird Mfg. has received a special one-time order for 10,000 bird feeders at $25 per unit. Redbird currently produces and sells 100,000 units at $30.00 each. These bird feeders would be marketed under the wholesaler's name and Redbird's managers estimate that sales through its normal channels would be reduced by 2,000 units. Production costs for all units are $17.50 per unit, which includes $12.50 in variable costs and $5.00 of fixed costs. Assume that Redbird has sufficient capacity to fill the order, should Redbird accept the order? If no answer with a zero (use 0). If yes answer with the total amount of incremental profit.

Answer 1

Total Units if the Special order accepted =75000+10,000 =90000 Units
the special order and existing sales bothare in with capacity
Incremental Income if the special Order accepted	Amount in $
Sale revenur from Special order (10000*$25)	2,50,000
Less: variable costs (10000*12.50)	1,25,000
Less: loss of contribution 2,000 units(2000*(30-12.5)	35,000
Incremental income	90,000
if the special order accepted , the net profit will incresed by $ 90,000