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21 May, 13:05

12. Bania's Soup Company is considering accepting a special order for its soup. The normal sales price of a case of soup is $22 and the variable cost per case of soup is $17. Bania's total fixed costs are $10,000, which is equivalent to $5 per case. Normal volume is 2,000 cases of soup. The relevant range is 1,000 - 4,000 cases. The company has received a special order for 200 cases of soup at a price of $19 per case. If they accept the order: A. Their profits will increase by $3,800 B. Their profits will decrease by $600 C. Their profits will decrease by $1,400 D. Their profits will increase by $400

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  1. 21 May, 13:32
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    Their profits will increase by $400

    Explanation:

    Consider the incremental costs and revenues arising from the special order

    Note : Fixed costs are irrelevant for this decision because the special order is being accepted within the relevant range.

    Analysis of incremental costs and revenues

    Sales (200 cases*$19) $3,800

    Variable Cost (200 cases*$17) $3,400

    Net Income / (loss) $400

    Result : Their profits will increase by $400
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Home » Business » 12. Bania's Soup Company is considering accepting a special order for its soup. The normal sales price of a case of soup is $22 and the variable cost per case of soup is $17. Bania's total fixed costs are $10,000, which is equivalent to $5 per case.
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