Question

Brilliant, Inc. reported the following results from the sale of 24,000 units of IT-54.  Extra Company has offered to purchase 3,000 IT-54s at $16 each. Brilliant has available capacity, and the president is in favor of accepting the order. She feels it would be profitable because no variable selling costs will be incurred. The plant manager is opposed because the "full cost" of production is $17. What is the change in income if the special order is accepted?

Sales	$528,000
Variable manufacturing costs	288,000
Fixed manufacturing costs	120,000
Variable selling costs	52,800
Fixed administrative costs	35,200

Answer 1

Increase in income due to acceptance of Special order = $12,000

Working

financial advantage (disadvantage) of accepting the special order
Additional Revenue from offer (3000 x $16)	$        48,000.00
Less: Total Additional cost due to acceptance of offer	$        36,000.00
Financial Advantage	$        12,000.00

.

Calculation of Additional Cost of Order
	Per Unit	Total
Variable manufacturing cost	$                12.00	$          36,000.00

.Fixed manufacturing cost and fixed selling cost will not be considered because these costs are not affected in totality due to acceptance of order.

Only variable manufacturing cost is the additional cost and relevant cost that will be incurred if order is accepted.