Bluebird Mtg received a special onetime order for 15,000 bird feeders at $3 per

Question

Bluebird Mtg received a special onetime order for 15,000 bird feeders at $3 per unit. Bluebird currently produces and sells 75'000 units at $7.00 each. The level represents 80% of its capacity. Production cost for these units are $3.50 per unit, which includes $2.25 variable cost and $125 fixed cost. If bluebird accepts the additional business, the effect on net income will be: $ 11,250 increase 4. Fredrick Co. is thinking about having one of its products manufactured by a subcontractor. If Fredrick can buy 5,000 units from a subcontractor for $130,000 it should: Buy the product because the total incremental cost of manufacturing are greater than $130,000 5. Chang industries has 2,000 defective units of product that have already cost $14 each to produce. A salvage company will purchase the defective units as they are for $5 each. Chang's Deduction manager reports that the defects can be corrected for $6 per unit, enabling them to be sold at their regular market price of $21. The incremental income or loss on reworking the units is: $20,000 income

Explanation / Answer

15000 3 Spare Capacity 75000 7 80% 93750 18750 production Cost VC 2.25 FC 1.25 3.5 TotalFixed Cost 117187.5 Contribution pu regular customer 4.75 BEP 24671.05 i.e. fixed cost are already recovered net effect on revenue 15000*0.75 11250 Increase Fredrick Cost DM 62000 DL 47000 VFOH 38000 FOH 52000 Total 199000 Cost of buying 130000 He should buy Defective units 2000 Cost incurred 14 pu Salvage value(2000*5) 10000 Reworking cost 12000 Salvage Rework Incremental 0 12000 -12000 10000 42000 32000 20000 Net Incremental income

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