It costs Garner Company $12 of variable and $5 of fixed costs to produce one bathroom scale which normally sells for $35. A foreign wholesaler offers to purchase 2,000 scales at $15 each. Garner would incur special shipping costs of $1 per scale if the order were accepted. Garner has sufficient unused capacity to produce the 2,000 scales. If the special order is accepted, what will be the effect on net income?
A) $4,000 increase
B) $4,000 decrease
C) $6,000 decrease
D) $30,000 increase

Question

Quizplus · Accepted Answer

The contribution margin per scale is $15 (selling price) - $12 (variable cost) - $1 (shipping cost) = $2. For 2,000 scales, the increase in net income is 2,000 * $2 = $4,000.

It Costs Garner Company $12 of Variable and $5 of Fixed