Collegiate Products produces and sells padded stadium seats emblazoned with a university logo. The company has the capacity to produce as many as 6,000 seats per month but consistently averages much less. When 4,500 seats are produced, each seat has $5 of variable costs and $2 of fixed overhead costs allocated to it. The seats typically sell for $12 each. The company has been approached by a small college who wishes to purchase 500 seats for special alumni at a price of $5 per seat. If the special order were accepted, net income would:

Question

Quizplus · Accepted Answer

Since the variable cost per seat is $5 and the special order price is also $5 per seat, the revenue from the special order would exactly cover the variable costs of producing the additional seats. Fixed costs are not affected by the order because they remain constant regardless of production volume within the capacity limit. Therefore, accepting the special order would not change the net income.

Collegiate Products Produces and Sells Padded Stadium Seats Emblazoned with a University