Collegiate Products produces and sells padded stadium seats emblazoned with a un
ID: 2490074 • Letter: C
Question
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:
a. decrease by $12,500. b. increase by $2,500. c. decrease by $1,000. d. not change.Explanation / Answer
The variable cost incurred in accepting the new offer is $5. The revenue is also $5 per unit. Therefore, the net income would not change on acceptance of this order.