Bluebird Mfg. has received a special one-time order for 15,000 bird feeders at $3.50 per unit. Bluebird currently produces and sells 75,000 units at $7.50 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 $4.25 per unit, which includes $2.50 variable cost and $1.75 fixed cost. If Bluebird accepts this additional business, the effect on net income will be:

Question

Business

Melina Dominguez

14 October, 07:56

Bluebird Mfg. has received a special one-time order for 15,000 bird feeders at $3.50 per unit. Bluebird currently produces and sells 75,000 units at $7.50 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 $4.25 per unit, which includes $2.50 variable cost and $1.75 fixed cost. If Bluebird accepts this additional business, the effect on net income will be:

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Homer · Answer 1

Effect on income = $15,000 increase

Explanation:

Giving the following information:

Offer = 15,000 bird feeders at $3.50 per unit.

Production costs:

$2.50 variable cost

Because it is a special offer that won't affect actual sales and there is unused capacity, we will not take into account the fixed costs.

Effect on income = 15,000 * (3.5 - 2.5)

Effect on income = $15,000 increase