Question

Use the following information for the next 2 questions. James & Co., which has excess capacity, received a special order for 4,000 units at a price of $18 per unit. Currently, production and sales are budgeted for 25,000 units without considering the special order. Budget information for the current year is presented below: Sales $ 900,000 Less: Cost of goods sold 600,000 Gross margin $ 300,000 Less: Operating expenses 200,000 Net income $ 100,000 James & Co. estimates that 70% of Cost of goods sold is variable manufacturing costs and 60% of Operating expenses are fixed costs. 11. If the order is accepted, net income will: a. Increase b. Decrease c. Remain the same d. More information is need to answer the question e. None of the above 12. Refer to the previous question. By what amount, if any, will net income change? (If net income will not change or more information is needed to answer the previous questions, state your answer as "N/A.")

Answer 1

rate positively .... let me know if you need any clarification..

	Only variable expenses will be considered to evaluate the special order
	Variable cost of goods sold =				16.80
	600000*70%/25000
	Variable operating expenses				3.20
	200000*40%/25000
	Total variable cost per unit =				20.00
	Price of special order =				18
ans A)	therefore if the order is accepted it will result into = b) Decrease of net income
ans b)	Decrease in net income =
	(18-20)*4000				-8000