Question

Swifty Company manufactures a product with a unit variable cost of $43 and a unit sales price of $76. Fixed manufacturing costs were $80500 when 11500 units were produced and sold, equating to $7 per unit. The company has a one-time opportunity to sell an additional 1300 units at $55 each in an international market which would not affect its present sales. The company has sufficient capacity to produce the additional units. How much is the relevant income effect of accepting the special order?

$55900

$6500

$57500

$15600

Answer 1

Answer: $ 15,600

Solution:

Revenue from additional order:     $ 1,300 X $ 55 =     $ 71,500

Less: Variable cost:                         $ 1,300 X $ 43 =   $ 55,900

Additional income:                                                         $ 15,600

Note: Fixed cost remains same irrespective of production volume.