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2 April, 15:30

Stewart Corporation manufactures solar powered calculators. The company can manufacture 1,120,000 calculators a year at a variable cost of $2,352,000 and a fixed cost of $1,232,000. Based on management's projections for next year, 952,000 calculators will be sold at the regular price of $16.00 each. A special order has been received for 232,000 calculators to be sold at a 70% discount off the regular price. Total fixed costs would be unaffected by this order. The company's net operating income will be increased as a result of the special order by: (Do not round your intermediate calculations.)

a. $371,200.

b. $1,113,600.

c. $626,400.

d. $487,200

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Answers (1)
  1. 2 April, 17:02
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    Option (c) is correct.

    Explanation:

    Given that,

    No. of calculators manufacture = 1,120,000

    variable cost = $2,352,000

    Fixed cost = $1,232,000

    No. of calculators for the special order = 232,000

    Variable cost per unit:

    = Variable cost : No. of calculators manufacture

    = $2,352,000 : 1,120,000

    = $2.10 per unit

    Income (Loss) from special order:

    = Sales - Variable costs

    = (232,000 * $16 * 30%) - (232,000 * $2.10)

    = $1,113,600 - $487,200

    = $626,400
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