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:

A) $45,000 increase.
B) $11,250 increase.
C) $33,750 increase.
D) $7,500 decrease.
E) $33,750 decrease.

Question

Tiana Conflitti · Accepted Answer

Final Answer : B, Explanation :  To determine the effect on net income of accepting the special one-time order, we need to calculate the incremental revenue and incremental cost.Incremental revenue = 15,000 x $3 = $45,000Incremental cost = 15,000 x $3.50 = $52,500Since the incremental cost exceeds the incremental revenue, accepting the special one-time order would result in a decrease in net income.The decrease in net income would be:(Incremental revenue - Incremental cost) = ($45,000 - $52,500) = -$7,500Therefore, the best choice is B because it represents the decrease in net income if Bluebird accepts the special one-time order.

Definitions

Learning Objectives

Learning Objectives

Related questions