Question

Stryker Industries received an offer from an exporter for 30,000 units of product at $17 per unit. The acceptance of the offer will not affect normal production or domestic sales prices. The following data is available:

Domestic unit sales price	$23
Unit manufacturing costs:
Variable	14
Fixed	6

What is the amount of income or loss from acceptance of the offer?

Answer 1

Gain per unit = Offer price per unit - Variable cost per unit

= $17 - $14

= $3 per unit

Here, we will not consider the fixed cost for calculating the gain or loss from the offer because it will remain fixed and will have to be incurred irrespective of whether we accept the offer or not. So, only variable costs will be deducted from the sale price to arrive at the gain or loss from the offer. Gain per unit is calculated by deducting variable cost per unit from the sale price offered by exporter.

Calculation of the total income by accepting the offer :

Total income = Gain per unit * no. of units

= $3 * 30000

= $90000

So, the total income from accepting the offer will be $90000.