Special order_ Accept or Reject

$5.00

Description

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

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 at19/unit?

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

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