Assume the same data as in Problem 2 for the cost to make a Widget. What if we could sell the widgets we make for $50 to other customers. We receive a special order for 1,000 more widgets but that customer wants to just pay $30. It would not affect our current orders or our fixed costs and we have plenty of plant capacity.

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facundobuzzetti facundobuzzetti · Answer 1 · 2020-07-13T02:24:14+02:00

Answer:

Effect on income= number of units soldünitary contribution margin

Explanation:

Giving the following information:

We receive a special order for 1,000 more widgets but that customer wants to just pay $30.

We weren't provided with enough information regarding variable costs. But, I can provide a small example and formulas.

Because it is a special offer and there is unused capacity, we will not take into account the fixed costs.

Variable cost per unit (materials, labor, variable overhead)= $28

To calculate the effect on income, we need to use the following formula:

Effect on income= number of units soldünitary contribution margin

Effect on income= 1,000*(30 - 28)

Effect on income= $2,000 increase