Reggie Ltd. manufactures a single product with the following unit costs for 1,000 units: $\begin{array}{lr}
\text { Direct materials } & £ 2,400 \
\text { Direct labour } & 960 \
\text { Factory overhead (30\% variable) } & 1,800 \
\text { Selling expenses }(50 \% \text { variable) } & 900 \
\text { Administrative expenses (10\% variable }) & 840 \
\text { Total per unit } & \underline{£6,900}
\end{array}$ Recently, a company approached Reggie Ltd. 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

Quizplus · Accepted Answer

The net income increases by £45,000 when accepting the special order. This is calculated by considering the additional revenue from the special order, minus the lost revenue from regular sales and the variable costs associated with the special order.

Reggie Ltd Recently, a Company Approached Reggie Ltd