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There are a number of individual decisions covered in this week’s material. One is incremental analysis. The problem below is an example of this. The only things that are different in the various scenarios are sales dollars and variable costs. Since fixed costs are fixed, they have no impact on the decision. So, as long as the additional units can be sold at a price higher than the variable cost, the order will increase net income.

Your company produces 10,000 units which is 80% of capacity and its normal Don't use plagiarized sources. Get Your Custom Essay on see below 501089 For $10/Page 0nly Order Essay
selling price is $25/unit.
The following cost data are provided at 10,000 units:
	Variable cost per unit		$16
	Fixed cost per unit		4

a) Should you accept a special order from a foreign company for an additional
2,000 units at a special price of $22/unit?

b) Should you accept the order at $19/unit?

c) Should you accept the order at $15/unit?

	Without
	Special	With Special Order
	Order	$22	$19	$15
Sales	250,000	294,000	288,000	280,000
Variable Cost	(160,000)	(192,000)	(192,000)	(192,000)
Fixed Cost	(40,000)	(40,000)	(40,000)	(40,000)
Net Income	50,000	62,000	56,000	48,000

Change in Revenue		44,000	38,000	30,000
Change in Expense		32,000	32,000	32,000
Change in Net Income		12,000	6,000	(2,000)