It costs Waterway Industries $28 of variable costs and $14.40 of allocated fixed costs to produce an industrial trash can that sells for $72. A buyer in Mexico offers to purchase 3000 units at $39 each. Waterway Industries has excess capacity and can handle the additional production. What effect will acceptance of the offer have on net income?

Question

Business

Reyna Cervantes

1 March, 13:37

It costs Waterway Industries $28 of variable costs and $14.40 of allocated fixed costs to produce an industrial trash can that sells for $72. A buyer in Mexico offers to purchase 3000 units at $39 each. Waterway Industries has excess capacity and can handle the additional production. What effect will acceptance of the offer have on net income?

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Mathias Mcpherson · Answer 1

Special request income 33,000

Explanation:

special request:

3000 units x $39 = 117,000

variable cost:

3000 units x $28 = 84,000

Contribution margin 33,000

special cost: none

additional fixed cost: none

Special request income 33,000

Notice:

Non additional shipping or setup cost is request for the order.

Non increase in fixed cost due to excess capacity.

If any of this concept do inccur in additional cost, it should be relevant as well in the calculations.