Jones Corporation prepared the following budgeted income statement at the beginning of the current year:
Expected sales (80,000 units)$400,000
Operating costs:
Variable costs $220,000
Fixed costs 100,000 320,000
Operating income $ 80,000
During the middle of the year, the managers estimated that regular sales would amount to only 70,000 units. Recently, a foreign company requested a special order for 10,000 units at a price of $4. If the order is accepted, each unit must be stamped with the customer's name. This would require the purchase of a stamping machine for $10,000 that could only be used for this order.
a)Determine the relevant costs for the special order decision.
b)What will be the effect on overall company profits if the order is accepted?

Question

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The Answer of Jones Corporation prepared the following budgeted income statement at the beginning of the current year:
Expected sales (80,000 units)$400,000
Operating costs:
Variable costs $220,000
Fixed costs 100,000 320,000
Operating income $ 80,000
During the middle of the year, the managers estimated that regular sales would amount to only 70,000 units. Recently, a foreign company requested a special order for 10,000 units at a price of $4. If the order is accepted, each unit must be stamped with the customer's name. This would require the purchase of a stamping machine for $10,000 that could only be used for this order.
a)Determine the relevant costs for the special order decision.
b)What will be the effect on overall company profits if the order is accepted?

Jones Corporation Prepared the Following Budgeted Income Statement at the Beginning