It costs Sunland Company $28 of variable costs and $18.0 of allocated fixed costs to produce an industrial trash can that sells for $90. A buyer in Mexico offers to purchase 3000 units at $30 each. Sunland Company has excess capacity and can handle the additional production. What effect will acceptance of the offer have on net income?

Question

Hadassah Underwood

Business

23 February, 02:46

It costs Sunland Company $28 of variable costs and $18.0 of allocated fixed costs to produce an industrial trash can that sells for $90. A buyer in Mexico offers to purchase 3000 units at $30 each. Sunland Company 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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Kyle Baird · Answer 1

Increase in income = $6,000

Explanation:

Giving the following information:

It costs Sunland Company $28 of variable costs and $18.0 of allocated fixed costs to produce an industrial trash can that sells for $90. A buyer in Mexico offers to purchase 3000 units at $30 each. Sunland Company has excess capacity and can handle the additional production.

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

Effect on income = (30 - 28) * 3,000 = $6,000