Baden Company manufactures a product with a unit variable cost of $50 and a unit sales price of $88. Fixed manufacturing costs were $240,000 when 10,000 units were produced and sold. The company has a one-time opportunity to sell an additional 1,000 units at $70 each in a foreign market which would not affect its present sales. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows:
A) Income would decrease by $4,000.
B) Income would increase by $4,000.
C) Income would increase by $70,000.
D) Income would increase by $20,000.

Question

Quizplus · Accepted Answer

The contribution margin per unit for the special order is $70 (sales price) - $50 (variable cost) = $20. For 1,000 units, the increase in income would be 1,000 units * $20 = $20,000.

Baden Company Manufactures a Product with a Unit Variable Cost