Carney Company manufactures cappuccino makers. For the first eight months of 2019, the company reported the following operating results while operating at 80% of plant capacity: Sales (500,000 units) $90,000,000 Cost of goods sold 54,000,000 Gross profit 36,000,000 Operating expenses 24,000,000 Net income $12,000,000 An analysis of costs and expenses reveals that variable cost of goods sold is $95 per unit and variable operating expenses are $35 per unit. In September, Carney Company receives a special order for 40,000 machines at $135 each from a major coffee shop franchise. Acceptance of the order would result in $10,000 of shipping costs but no increase in fixed expenses. Collapse question part (a) Prepare an incremental analysis for the special order.

Total effect on income = $190,000

Explanation:

Giving the following information:

Sales (500,000 units) $90,000,000

Cost of goods sold 54,000,000

Gross profit 36,000,000

Operating expenses 24,000,000

Net income $12,000,000

An analysis of costs and expenses reveals that the variable cost of goods sold is $95 per unit and variable operating expenses are $35 per unit. In September, Carney Company receives a special order for 40,000 machines at $135 each from a major coffee shop franchise. Acceptance of the order would result in $10,000 of shipping costs but no increase in fixed expenses

Because it is a special offer and there is unused capacity, we will not have into account the fixed costs.

Total unitary cost = 95 + 35 + (10,000/40,000) = 130.25

Contribution margin = 135 - 130.25 = 4.75

Total effect on income = 4.75*40,000 = $190,000