Express Company has the capacity to produce 100,000 juicers per month. They are currently producing and selling 80,000 juicers. The cost of producing 80,000 juicers is $1,200,000 (800,000 variable and $400,000 fixed). The juicers are normally sold directly to retailers at @ $25 each. Express has an offer from Apple Company (foreign wholesaler) to purchase an additional 10,000 juicers at $14 each. Acceptance of this offer would not affect normal sales. If the offer is rejected the vacant factory space could be rented out to produce rent revenue for Express Company of $18,000. If the special order is accepted, by how much would net income increase or decrease?
Variable cost of producing juicer = 800,000/80,000=$10 per unit
Selling price under special order = $14
Variable and fixed costs are discussed.