Question

Snider, Inc., which has excess capacity, received a special order for 3,000 units at a price of $14 per unit which it could produce with the excess capacity.
Currently, production and sales are anticipated to be 10,000 units without considering the special order.
Cost of goods sold includes $30,000 of fixed manufacturing cost.
Below is budget information for the current year sales of 10,000 units follows.
	Sales	$200,000
	Less: cost of goods sold	150,000
	Gross Margin	$50,000
Required:
If the special order is accepted, calculate the specific change in income for only the special order. Make sure you show your work
Provide a recommendation to management if the company should accept or reject this special order. Explain in detail your recommendation to management.
Recommendation with calculations and impact to income of special order:

Answer 1

Change in income due to special order = $6000 Increase

Recommendation----------Accept the special order as it increase overall net income.

Working and calculations to support the decision.

The fixed cost will not change due to acceptance of order but only variable cost will be incurred so only the addotional variable cost is relevant for for decision making.

Total variable cost incurred on order of 3000 units(120000/10000 x 3000)	$        36,000.00

financial advantage (disadvantage) of accepting the special order
Additional Revenue from offer (3000 x $14)	$        42,000.00
Less: Total Additional cost due to acceptance of offer	$        36,000.00
Financial Advantage of accepting special order	$          6,000.00