In: Accounting
Whispering Winds Manufacturing has an annual capacity of 80,400 units per year. Currently, the company is making and selling 78,100 units a year. The normal sales price is $106 per unit, variable costs are $70 per unit, and total fixed expenses are $2,000,000. An out-of-state distributor has offered to buy 5,600 units at $75 per unit. Whispering Winds's cost structure should not change as a result of this special order. By how much will Whispering Winds's income change if the company accepts this order?
Whispering Winds’ net income will(increase/decrease) by $ if it accepts the special order?
No | 78,100 @ $ 106 | 72,500 @$ 106 + 5600 @ $ 75 | 74800@106+5600@75 | |
Sales | A | 82,78,600 | 81,05,000 | 83,48,800 |
Variable cost @ $70 | B | 54,67,000 | 54,67,000 | 56,28,000 |
Contribution margin | C=A-B | 28,11,600 | 26,38,000 | 27,20,800 |
Contribution margin % | D=C/A | 34% | 33% | 33% |
Fixed cost | E | 20,00,000 | 20,00,000 | 20,00,000 |
Net Income | F=C-E | 8,11,600 | 6,38,000 | 7,20,800 |
Change in income with full capacity = 811,600 - 720,800 | ||||
= $ 90,800 | ||||
When operating at current output | ||||
Change in net income = $ 811,600 - 638,000 = $ 1,73,600 | ||||
The net income decreases by $ 90,800. |