Homework Answers
Answer is Option (2) $18,750 Increase
| Calculation of effect on net income if Bluebird accepts the additional business: |
| Bluebird currently produces and sells 75,000 units and s level represents 80% of its capacity |
| Hence full capacity shall be = 75000 / 80% = 93750 units |
| Hence Blue bird can produce additional 15000 units without incurring additional fixed costs |
| Purticules | Amount |
| Incremental Revenue (15000 Units *$4.00) | $ 60,000 |
| Less: Incremental Costs : | |
| Variable costs (15000 Units *$2.75 ) | $41,250 |
| Increase in Net income | $ 18,750 |
| Hence Net income shall increase by $18,750, if Bluebird accepts the additional business |
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