Question

Sheridan Company incurs a cost of $35 per unit, of which $20 is variable, to make a product that normally sells for $58. A foreign wholesaler offers to buy 5,700 units at $30 each. Sheridan will incur additional costs of $4 per unit to imprint a logo and to pay for shipping. Compute the increase or decrease in net income Sheridan will realize by accepting the special order, assuming Sheridan has sufficient excess operating capacity. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		Reject		Accept		Net Income Increase (Decrease)
Revenues		$		$		$
Costs
Net income		$		$		$

Should Sheridan Company accept the special order?

Sheridan company should accept or reject the special order.

Answer 1

Solution

	Reject	Accept	Net Income Increase (Decrease)
Revenues		$ 1,71,000.00*	$    1,71,000.00
Costs		$ 1,36,800.00**	$ (1,36,800.00)
Net Income	$            -	$      34,200.00	$       34,200.00

.Sheridan company should accept the special order.

*5700 x 30

**5700 x (20+4)

Fixed cost will not be incurred if special order is accepted so the cost only includes the variable cost of production.