The company has an opportunity to secure a special order of 800 units if it is willing to drop the selling price on these units to $13. Costs of securing the special order would be $1,000. The special order would not affect the company's regular sales. If the special order is accepted, the company's overall net operating income will:

Question

Quizplus · Accepted Answer

To calculate the impact of the special order on net operating income, we need to compare the incremental revenue from the order with the incremental costs.

Incremental revenue = (800 units x $13 selling price) = $10,400

Incremental costs = $1,000

Incremental net income = $10,400 - $1,000 = $9,400

Therefore, if the special order is accepted, the company's overall net operating income will increase by $9,400. However, we need to subtract the opportunity cost of not selling at the regular price from this amount.

Opportunity cost = (1,000 units x $16 selling price) - (1,000 units x $12 variable cost) = $4,000

Therefore, the overall impact on net operating income = $9,400 - $4,000 = $5,400

This means that the company's net operating income will increase by $5,400 if it accepts the special order. Therefore, the correct answer is B.

The Company Has an Opportunity to Secure a Special Order