Aurora Enterprises incurs costs of $38 per unit ($27 variable and $11 fixed) to make a product that normally sells for $56. A wholesaler offers to buy 3,500 units for $36 each. This special order will result in additional shipping costs of $1.15 per unit. Assuming Aurora has adequate manufacturing capacity, it should

(A) reject the offer because it will lead to a net loss of $7,000.

(B) accept the offer because it will produce net income of $31,500.

(C) accept the offer because it will produce net income of $27,475.

(D) reject the offer because it will lead to a net loss of $11,025.

Question

Winston Ho

Business

12 September, 17:36

Aurora Enterprises incurs costs of $38 per unit ($27 variable and $11 fixed) to make a product that normally sells for $56. A wholesaler offers to buy 3,500 units for $36 each. This special order will result in additional shipping costs of $1.15 per unit. Assuming Aurora has adequate manufacturing capacity, it should

(A) reject the offer because it will lead to a net loss of $7,000.

(B) accept the offer because it will produce net income of $31,500.

(C) accept the offer because it will produce net income of $27,475.

(D) reject the offer because it will lead to a net loss of $11,025.

+5

Answers (1)

Know the Answer?

Hodges · Answer 1

The correct answer is D.

Explanation:

Giving the following information:

Aurora Enterprises incurs costs of $38 per unit ($27 variable and $11 fixed) to make a product that normally sells for $56. A wholesaler offers to buy 3,500 units for $36 each. This special order will result in additional shipping costs of $1.15 per unit.

Variable costs = 38 + 1.15 = 39.15

Gain/Loss = (3500*36) - (3500*39.15) = - $11,025