It costs Blakeley Company $22.10 of variable and $2.20 of allocated fixed costs to produce an industrial trash can that normally sells for $31.30. A buyer offers to purchase 2,200 units at $21.00 each. Blakeley has excess capacity and can handle the additional production. What effect will acceptance of the offer have on net income?

Question

Business

Nylah Myers

4 November, 08:07

It costs Blakeley Company $22.10 of variable and $2.20 of allocated fixed costs to produce an industrial trash can that normally sells for $31.30. A buyer offers to purchase 2,200 units at $21.00 each. Blakeley has excess capacity and can handle the additional production. What effect will acceptance of the offer have on net income?

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Answers (1)

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Claire Carney · Answer 1

Effect on income = $2,420 decrease

Explanation:

Giving the following information:

It costs Blakeley Company $22.10 of variable

A buyer offers to purchase 2,200 units at $21.00 each

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

Effect on income = 2,200 * (21 - 22.1)

Effect on income = $2,420 decrease

In this case, the company should reject the offer, because the unitary contribution margin is negative.