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

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