Question

Radar Company sells bikes for $410 each. The company currently sells 4,900 bikes per year and could make as many as 5,000 bikes per year. The bikes cost $250 each to make: $185 in variable costs per bike and $65 of fixed costs per bike. Radar received an offer from a potential customer who wants to buy 875 bikes for $360 each. Incremental fixed costs to make this order are $40,000. No other costs will change if this order is accepted. Compute Radar's additional income (ignore taxes) if it accepts this order. Incremental Incremental Amount per Fixed Unit Costs Incremental Income from New Business 185 Sales | $ 360 Variable cost Contribution margin $ 175 Fixed costs | $ 40,000 Incremental income (loss) from new business The company should 40,000 Accept the order

Answer 1

Special order Units 875 Incremental Incremental | Incremental income Amount Per Unit Fixed cost From New Business sales 360 315000 Variable cost 185 161875 Contirbution Margin 175 153125 Fixed cost 40000 40000 Incremental Income (loss) from New Business 113125 The Company Should Accept the Order