A company has the capacity to produce 20,000 units of its
product per year. It is currently only producing 13,000 units per
year, with a sell price of $70 per unit. A customer has placed a
special order for 6,500 units at $62 per unit. The incremental cost
of accepting the special order is $382,000.
Should the company accept the special order?
Answer-----------Yes, The company should accept the special order
|financial advantage (disadvantage) of accepting the special order|
|Additional Revenue from offer (6500 x $62)||$ 403,000.00|
|Less: Total Additional cost due to acceptance of offer||$ 382,000.00|
|Financial Advantage||$ 21,000.00|
The order will increase overall net income hence order should be accepted.
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