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Bluebird Mfg. has received a special one-time order for 15,000 bird feeders at $3 per unit. Bluebird currently produces and sells 75,000 units at $7.00 each. This level represents 80% of its capacity. These bird feeders would be marketed under the wholesaler’s name and would not affect Bluebird’s sales through its normal channels. Production costs for these units are $3.50 per unit, which includes $2.25 variable cost and $1.25 fixed cost. If Bluebird accepts this additional business, the effect on net income will be:

Respuesta :

Answer:

Net income will increase by $11,250

Explanation:

Provided information,

Current sales = 75,000 units which represents 80% capacity

Therefore, 100% capacity = [tex]\frac{75,000}{0.8} = 93,750 units[/tex]

Fixed cost at 100% capacity = $1.25 [tex]\times[/tex] 93,750 = $117,187.50

Therefore,

Current net income

Sales = 75,000 [tex]\times[/tex] $7.00 = $525,000

Less: Variable cost = 75,000 [tex]\times[/tex] $3.50 = $262,500

Less: Fixed Cost = $117,187.50

Net Operating Income = $145,312.50

Now with the additional order, which is of 15,000 units the additional ideal capacity of 20% will be utilized, further no fixed cost will be incurred, as the entire fixed cost for 100% capacity is utilized, thus

Sales = 15,000 [tex]\times[/tex] $3 = $45,000

Less: Variable cost = 15,000 [tex]\times[/tex] $2.25 = $33,750

Net Income = $11,250

Thus, the net income will increase by $11,250