Question

Blue Technologies manufactures and sells DVD players. Great Products Company has offered Blue Technologies

$ 20

per DVD player for​ 10,000 DVD players. Blue​Technologies' normal selling price is

$ 33

per DVD player. The total manufacturing cost per DVD player is

$ 19

and consists of variable costs of

$ 12

per DVD player and fixed overhead costs of

$ 7

per DVD player.​ (NOTE: Assume excess capacity and no effect on regular​ sales.)

Should Blue Technologies accept or reject the special sales​ order?

A.​Reject, because operating income would decrease

$210,000.

B.​Accept, because operating income would increase

$80,000.

C.​Accept, because operating income would increase

$320,000.

D.​Reject, because operating income would decrease

$80,000

Answer 1

Correct answer----- (B) ​Accept, because operating income would increase $80,000.

Additional Revenue (10000 x $20)	$ 2,00,000.00
Additional cost due to acceptance of offer
Variable manufacturing cost (10000 x 12)	$ 1,20,000.00
Total Additional benefit of accepting offer	$      80,000.00

Fixed cost will not be considered since it remains the same when production is done in the capacity.