Minnesota Company has no beginning and ending inventories, and has the following data about its only product: Fixed manufacturing costs $92,000 Fixed selling and administrative costs $69,000 Variable manufacturing costs $1,030,000 Variable selling and administrative costs $120,000 Selling price (per unit) $125 Units produced and sold 23,000 Assume there is excess capacity. The company has received a special order for 1,000 units at $60.00 per unit. If the special order is accepted, what will be the effect on net income

Effect on income = $10,000 increase

Explanation:

Giving the following information:

Variable manufacturing costs $1,030,000

Variable selling and administrative costs $120,000

The company has received a special order for 1,000 units at $60.00 per unit.

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

First, we need to calculate the unitary variable cost:

Unitary variable manufacturing cost = 1,030,000/23,000 = $44.78

Unitary variable selling and administrative cost = 120,000/23,000 = $5.22

Total unitary variable cost = 44.78 + 5.22 = $50

Now, we can determine the effect on income:

Effect on income = 1,000 * (60 - 50) = $10,000 increase