Baden Company manufactures a product with a unit variable cost of $100 and a unit sales price of $176. Fixed manufacturing costs were $480,000 when 10,000 units were produced and sold. The company has a one-time opportunity to sell an additional 1,000 units at $140 each in a foreign market which would not affect its present sales. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows:
A) Income would decrease by $8,000.
B) Income would increase by $8,000.
C) Income would increase by $140,000.
D) Income would increase by $40,000.

Question

Quizplus · Accepted Answer

The contribution margin per unit for the special order is $40 ($140 sales price - $100 variable cost). For 1,000 units, the increase in net income would be $40,000 (1,000 units x $40).

Baden Company Manufactures a Product with a Unit Variable Cost