Whispering Winds Manufacturing has an annual capacity of 80,400 units per year. Currently, the company is...

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?

Expert Solution

	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.

ekkarill92 answered 3 days ago

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