At Bargain Electronics, it costs $30 per unit ($20 variable and $10 fixed) to make an MP3 player at full capacity that normally sells for $45. A foreign wholesaler offers to buy 3,000 units at $25 each. Bargain Electronics will incur special shipping costs of $3 per unit. Assuming that Bargain Electronics has excess operating capacity, indicate the net income (loss) Bargain Electronics would realize by accepting the special order. (Enter negative amounts using either a negative sign preceding the number e. g. - 45 or parentheses e. g. (45).)

Question

Business

Ronan Prince

15 August, 15:18

At Bargain Electronics, it costs $30 per unit ($20 variable and $10 fixed) to make an MP3 player at full capacity that normally sells for $45. A foreign wholesaler offers to buy 3,000 units at $25 each. Bargain Electronics will incur special shipping costs of $3 per unit. Assuming that Bargain Electronics has excess operating capacity, indicate the net income (loss) Bargain Electronics would realize by accepting the special order. (Enter negative amounts using either a negative sign preceding the number e. g. - 45 or parentheses e. g. (45).)

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Eli Zimmerman · Answer 1

Net Income Bargain Electronics would realize by accepting the special order is - $ 24,000

Explanation:

Bargain Electronics is operating at full capacity, therefore the fixed costs are relevant at this decision.

Incremental Costs and Revenues - Special Order 3000 units

Sales (3000 * $25) 75,000

Variable Cost (3000 * $20) (60,000)

Fixed Costs (3000 * $10) (30,000)

Shipping Costs (3000*$3) (9,000)

Net Income - 24,000