Bluebird Mfg. has received a special one-time order for 15,000 bird feeders at $3 per unit. Bluebird currently produces and sells 75,000 units at $7.00 each. This level represents 80% of its capacity. These bird feeders would be marketed under the wholesaler's name and would not affect Bluebird's sales through its normal channels. Production costs for these units are $3.50 per unit, which includes $2.25 variable cost and $1.25 fixed cost.
-If Bluebird accepts this additional business, the incremental cost will be:
A) $38,750.
B) $7,500.
C) $33,750.
D) $11,250.
E) $45,000.

Question

Bluebird Mfg. has received a special one-time order for 15,000 bird feeders at $3 per unit. Bluebird currently produces and sells 75,000 units at $7.00 each. This level represents 80% of its capacity. These bird feeders would be marketed under the wholesaler's name and would not affect Bluebird's sales through its normal channels. Production costs for these units are $3.50 per unit, which includes $2.25 variable cost and $1.25 fixed cost. 
-If Bluebird accepts this additional business, the incremental cost will be:
A) $38,750.
B) $7,500.
C) $33,750.
D) $11,250.
E) $45,000.

Quizplus · Accepted Answer

The incremental cost is the additional cost incurred by Bluebird for accepting this special one-time order. To calculate the incremental cost, we need to calculate the additional variable cost and any additional fixed costs incurred.

Additional variable cost per unit = $2.25

Total additional variable cost for 15,000 units = $2.25 * 15,000 = $33,750

There are no additional fixed costs mentioned in the question, so the incremental cost is equal to the additional variable cost, which is $33,750. Therefore, the best choice is C.