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.
Assume there is additional capacity for 60 more units and the firm has to reduce regular customer sales by 40 units in order to contract the special order.There are selling expenses on only the sales to the regular customers.What is the net income if the special order of 100 units is accepted?
A) $831,960
B) $876,960
C) $1,011,600
D) $900,000

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.
Assume there is additional capacity for 60 more units and the firm has to reduce regular customer sales by 40 units in order to contract the special order.There are selling expenses on only the sales to the regular customers.What is the net income if the special order of 100 units is accepted?
A) $831,960 
B) $876,960 
C) $1,011,600 
D) $900,000

Quizplus · Accepted Answer

- Revenue from special order: 100 x $5,100 = $510,000
- Cost of manufacturing 100 units: 100 x ($6,100 + $1,200) = $730,000
- For manufacturing 100 units, the company has to reduce sales by 40 units, which equates to a loss of: 40 x $7,800 = $312,000 in revenue
- Selling expenses for the 960 units sold to dealers: 960 x $200 = $192,000
- The net income from the special order is calculated as follows:
Net Income = Revenue - Cost of Manufacturing - Loss on Sales - Selling Expenses 
Net Income = $510,000 - $730,000 - $312,000 - $192,000 = -$724,000
Since the net income is negative, the special order should not be accepted. Therefore, the best choice is B, which is the only option that gives a valid answer.

Reggie Corporation Manufactures a Single Product with the Following Unit