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.

Question
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.

Expert Answer

Want to see the step-by-step answer?

Check out a sample Q&A here.

Want to see this answer and more?

Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*

*Response times may vary by subject and question complexity. Median response time is 34 minutes for paid subscribers and may be longer for promotional offers.
Tagged in
Business
Accounting

Cost Accounting

Related Accounting Q&A

Find answers to questions asked by students like you.

Q: I'm not understanding how to solve this problem. I watched the video given as an example but that ju...

A: a1: Prepare a journal entry to record the cost of transferred-in material.

Q: I understand th accounting equation is: Liabilities + Stock Holders’ Equity = Assets How do you prep...

A: Transaction: A transaction is a business event which has a monetary value that creates an impact on ...

Q: Hi I'm stuck on this problem. My numbers aren't adding up and I'm completely lost because I have red...

A: Notes payable: Notes Payable is a written promise to pay a certain amount on a future date, with the...

Q: Sheridan Company has had 4 years of record earnings. Due to this success, the market price of its 45...

A: Stock dividends: Stock dividends are the number of shares issued by a company to the existing shareh...

Q: Hello, (Continued from an earlier email). Silverstone's production budget for July called for making...

A: Fixed overhead volume variance: The difference between the actual fixed overhead applied to the prod...

Q: Hello, I need help with this question. The work I did was Rims: Direct materials: 17 Direct Labor: 9...

A: Unit product cost represents the total cost of producing one or a single unit. Calculation of unit p...

Q: In which of the three activity categories of a statement of cash flows would each of the following i...

A: Cash flow statements are the statements that determines the inflow and outflow of cash from three ma...

Q: Hello, I attempted this problem but my values are not correct. Can you help me solve this? Thanks!

A: Break-even analysis is the easiest form of cost-volume-profit analysis. Break-even analysis is used ...

Q: I am resubmitting this question as I am getting flagged that there is information missing.    Losses...

A: Contribution format segmented income statement shows the difference between the fixed costs as trace...