Question

Do It! Review 20-2 Your answer is partially correct. Try again. Malze Company Incurs a cost of $34.98 per unit, of which $20.45 is variable, to make a product that normally sells for $58.46. A foreign wholesaler offers to be units at $30.00 each. Maize will incur additional costs of $2.91 per unit to Imprint a logo and to pay for shipping, Compute the increase or decrease in net incom Maize will realize by accepting the special order, assuming Maize has sufficient excess operating capacity. (Enter negative amounts using either a negative preceding the number e.g.-45 or parentheses e.g. (45).) Reject Accept Net Income Increase (Decrease) Revenues 30.00 T 5400 162000 Costs 20.45 5400 110430 Net Income 2.91 5400 15714 Should Maize Company accept the special order? Maize company should sho Accept the special order Click if you would like to Show Work for this question: Open Show Work LINK TO TEXI

Answer 1

Out of total costs of $34.98, $ 20.45 is variable .
Therefore,
Total Cost per unit	34.98
Variable Cost per unit	-20.45
Fixed Cost per unit	14.53
In case of a special order, the fixed cost calculated above has no relevance because they are fixed in nature and are hence already included in the cost of regular goods.
								Variable Costs and special costs only are relevant to decide whether a special order has to be accepted or not.
In this case,
		Per unit	Total units	Total
Incremental revenue	(a)	30.00	5,400	1,62,000
Incremental costs
Variable Cost		-20.45	5,400	-1,10,430
Additional costs		-2.91	5,400	-15,714
Total incremental costs	(b)	-23.36	5,400	-1,26,144
Net income	(a)-(b)	6.64	5,400	35,856
Since incremental revenues are positive, the company should accept the special order.