Question

St. Nick Co., a toy manufacturer, is considering taking on a special order of dolls. Currently, the company has excess capacity. The following information has been collected: Units requested for special order. Normal selling price per doll: Selling price per doll for special order. Variable manufacturing costs per doll: Fixed manufacturing cost per doll: 1.000 dolls $20 $18 $15 $4 Using incremental analysis, should St. Nick Co. accept the special order? Yes because this would increase net income by $3,000. No because this would decrease net income by $2,000. No because the total cost per doll of $19 is more than the special order selling price of $18 per doll. No because the selling price per the special order is less than the normal selling price.

Answer 1

Correct answer--------------Yes because this would increase net income by $3,000.

Working

Calculation of Additional Cost of Order
	Per Unit	Total
Variable manufacturing cost	$                    15.00	$ 15,000

.

financial advantage (disadvantage) of accepting the special order
Additional Revenue from offer (1000 x $18)	$ 18,000
Less: Total Additional cost due to acceptance of offer	$ 15,000
Financial Advantage	$ 3,000

Fixed cost will not be incurred for this special order so only variable cost is additional cost for order. Fixed cost in total remains same.