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.
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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.
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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

First, we need to calculate the contribution margin per unit for Reggie Corporation's current product:

Selling price - Unit cost per the given information = $7,800 - $4,950 = $2,850
Contribution margin per unit = $2,850

Next, we need to calculate the contribution margin for the special order:

Selling price - Unit cost per the given information = $5,100 - $4,950 = $150
Contribution margin per unit = $150

We can now calculate the total contribution margin from the special order:

$150 x 100 units = $15,000

Therefore, if the special order is accepted, income will increase by:

$15,000 - ($4,950 x 100 units) = $111,600

So, the best choice is C.

Reggie Corporation Manufactures a Single Product with the Following Unit