A company receives an order of 10,000 units of product. The potential customer is willing to pay $0.75 per unit. Current sales are $90,000 and current costs are $75,000 for 90,000 units. If the order is accepted, costs will increase to $82,000. If the company has the capacity to accept the order without affecting current sales, the company should:

Question

Jorden Ballard

Business

14 February, 16:09

A company receives an order of 10,000 units of product. The potential customer is willing to pay $0.75 per unit. Current sales are $90,000 and current costs are $75,000 for 90,000 units. If the order is accepted, costs will increase to $82,000. If the company has the capacity to accept the order without affecting current sales, the company should:

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Answers (2)

Know the Answer?

Eve Howell · Answer 1

accept the order, because profits will increase by $500

Nathen · Answer 2

will incur an increase in income in the amount of $500

Explanation:

If the company will accept the additional order and it wont affect the current sales, the costs that are relevant to decision making process is the possible increase in the sales and the possible increase in the costs incurred.

The increase in sales is computed by multiplying the number of units (10,000) and the selling price that the potential customer is willing to pay ($0.75).

So, 10,000 units x $0.75 = $7,500

By the moment the company will accept the order, their cost will increase to $82,000 from its original cost of $75,000. Hence, an increase of $7,000 ($82,000 - $75,000) will arise.

As a result of the foregoing analysis, an increase of $7,500 in sales less the increase of cost in the amount of $7,000 provides an additional income of $500.