Reggie Corporation manufactures a single product with the following unit costs for 1,000 units: Recently, a company approached Reggie Corporation about buying 100 units for $5,100 each. Currently, the models are sold to dealers for $7,800. Reggie Corporation's capacity is sufficient to produce the extra 100 units. No additional selling expenses would be incurred on the special order.
How much will income change if the special order is accepted?
A) increase by $398,400
B) decrease by $180,000
C) increase by $111,600
D) no change

Question

Reggie Corporation manufactures a single product with the following unit costs for 1,000 units:  Recently, a company approached Reggie Corporation about buying 100 units for $5,100 each. Currently, the models are sold to dealers for $7,800. Reggie Corporation's capacity is sufficient to produce the extra 100 units. No additional selling expenses would be incurred on the special order.
How much will income change if the special order is accepted?
A) increase by $398,400 
B) decrease by $180,000 
C) increase by $111,600 
D) no change

Quizplus · Accepted Answer

To determine the impact of the special order on income, we need to compare the income from selling the 100 units at the special price to the income from the current sales volume of 1,000 units.

- Income from selling 100 units at $5,100 each: 
Revenue = 100 x $5,100 = $510,000 
Cost of goods sold = 100 x $4,400 = $440,000 ($4,000 variable cost per unit + $400 fixed cost per unit) 
Income = $510,000 - $440,000 = $70,000

- Income from selling 1,000 units at $7,800 each: 
Revenue = 1,000 x $7,800 = $7,800,000 
Cost of goods sold = 1,000 x $4,400 = $4,400,000 
Income = $7,800,000 - $4,400,000 = $3,400,000

Therefore, accepting the special order would increase income by $70,000.

Answer C is correct: increase by $111,600. This answer is incorrect. The correct answer is increase by $70,000.

Reggie Corporation Manufactures a Single Product with the Following Unit