Explore BrainMass

Explore BrainMass

    The Effect on Net Income of a Special Order

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    A company manufactures a product. The company can manufacture 1,200,000 units a year at a variable cost of $3,000,000 and a fixed cost of $1,800,000. Based on projections for next year, 960,000 units will be sold at the regular price of $20.00 each. A special order has been received for 240,000 units to be sold at a 70% discount off the regular price. Total fixed costs would be unaffected by this order. By what amount would the company's net operating income be increased as a result of the special order?

    © BrainMass Inc. brainmass.com June 3, 2020, 11:49 pm ad1c9bdddf
    https://brainmass.com/business/accounting/the-effect-on-net-income-of-a-special-order-300798

    Solution Preview

    The basic cost-volume-profit formula is Sales revenue-Total variable costs-Total fixed costs=Net profit.
    Further, Sales revenue-Total variable costs=Contribution Margin, or (sales volume*unit selling price)-(sales volume*unit variable cost)=contribution margin.
    Factoring out sales volume, we find that Unit selling price-Unit variable costs=Unit ...

    Solution Summary

    A company manufactures a product. The company can manufacture 1,200,000 units a year at a variable cost of $3,000,000 and a fixed cost of $1,800,000. Based on projections for next year, 960,000 units will be sold at the regular price of $20.00 each. A special order has been received for 240,000 units to be sold at a 70% discount off the regular price. Total fixed costs would be unaffected by this order. By what amount would the company's net operating income be increased as a result of the special order?

    $2.19

    ADVERTISEMENT