If the offer is accepted with unused capacity, fixed costs will not increase. The amount of the sales price above variable costs will contribute to covering fixed costs. The firm will have $22400 [4000 units X ($23.6 - $18)] more than if it does not accept the offer. Thus, net income will increase by $22400.  It costs Sunland Company $18 of variable costs and $8 of fixed costs to produce its product that sells for $36. Wildhorse Company, a foreign buyer, offers to purchase 4000 units at $23.6 each. If the special offer is accepted and produced with unused capacity, net income will:  increase $16000. increase $22400. decrease $11200. increase $11200.

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Asked May 13, 2019
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If the offer is accepted with unused capacity, fixed costs will not increase. The amount of the sales price above variable costs will contribute to covering fixed costs. The firm will have $22400 [4000 units X ($23.6 - $18)] more than if it does not accept the offer. Thus, net income will increase by $22400.
   
It costs Sunland Company $18 of variable costs and $8 of fixed costs to produce its product that sells for $36. Wildhorse Company, a foreign buyer, offers to purchase 4000 units at $23.6 each. If the special offer is accepted and produced with unused capacity, net income will:
 

 

increase $16000.

 

increase $22400.

 

decrease $11200.

 

increase $11200.
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