The company sells bikes for $700. The company currently sells 8,500, but has the capacity to produce 20,000. It costs $375 to produce the bikes. Of this cost $250 is variable cost and $125 is fixed cost. They have received an offer from a potential customer that wants to purchase 1,000 bikes at $400 per bike. However, this would also cause an incurrence of an additional $50,000 in fixed cost. No other cost would change if this offer is accepted. Which costs are irrelevant?Which costs are relevant? How much additional revenue would be earned if they accept the offer?How much additional cost would be incurred if they accept the offer?How much additional profit would be incurred if they accept the offer?Should the company accept the offer?If the company will only accept special orders if they make a profit of $10,000, would they accept this special offer?

Cost: The amount paid to purchase the asset, install it, and put it into operations, is referred to…

Answered: The company sells bikes for $700. The…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 4EA: Zena Technology sells arc computer printers for $55 per unit. Unit product costs are: A special...

See similar textbooks

Related questions

Concept explainers

Question

The company sells bikes for $700.
The company currently sells 8,500, but has the capacity to produce 20,000.
It costs $375 to produce the bikes.
Of this cost $250 is variable cost and $125 is fixed cost.
They have received an offer from a potential customer that wants to purchase 1,000 bikes at $400 per bike.
However, this would also cause an incurrence of an additional $50,000 in fixed cost.
No other cost would change if this offer is accepted.

Which costs are irrelevant?
Which costs are relevant?
How much additional revenue would be earned if they accept the offer?
How much additional cost would be incurred if they accept the offer?
How much additional profit would be incurred if they accept the offer?
Should the company accept the offer?

If the company will only accept special orders if they make a profit of $10,000, would they accept this special offer?

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions