Question

Waterways Continuing Problem 07 (Part 1) Waterways mass-produces a special connector unit that it normally sells for $4.10. It sells approximately 32,900 of these units each year. The variable costs for each unit are $2.40. A company in Canada that has been unable to produce enough of a similar connector to meet customer demand would like to buy 13,600 of these units at $2.70 per unit. The production of these units is near full capacity at Waterways, so to accept the offer from the Canadian company would require temporarily adding another shift to its production line. To do this would increase variable manufacturing costs by $0.30 per unit. However, variable selling costs would be reduced by $0.20 a unit. An irrigation company has asked for a special order of 1,900 of the connectors. To meet this special order, Waterways would not need an additional shift, and the irrigation company is willing to pay $3.20 per unit. What are the consequences of Waterways agreeing to provide the 13,600 units to the Canadian company? Would this be a wise special order" to accept? Waterways accept the special order because net income by $ LINK TO TEXT LINK TO TEXT LINK TO TEXT Should Waterways accept the special order from the irrigation company? Waterways accept the special order because net income LINK TO TEXT LINK TO TEXT LINK TO TEXT What would be the consequences of accepting both special orders? Accepting both special orders would net income by $

Answer 1

Special Order of Canadian Company

Revenue	$            36,720	=13600*2.7
Variable Costs	$            34,000	=13600*(2.4+0.3-0.2)
Net Income	$              2,720

Waterways should accept the special order because net income increases by $2720

Irrigation Company

Revenue	$               6,080	=1900*3.2
Variable Costs	$               4,560	=1900*2.4
Net Income	$              1,520

Waterways should accept the special order because net income increases by $1520

Accepting both special orders would increase net income by $4240