In: Accounting
Big City Seat Cushions Inc. makes seat cushions for outdoor furniture
.Big City’s contribution margin income statement for the month ended
March31, 2019 is presented below: Big City Seat Cushions Inc. Income Statement For the Month Ended
March 31, 2019 Sales in Units 4,200 Sales Revenue $ 58,800 Variable Costs: Manufacturing 25,200 Selling and Administrative
11,000 Total Variable Costs 36,200 Contribution Margin 22,600 Fixed Costs: Manufacturing 12,500
Selling and Administrative 8,700 Total Fixed Costs 21,200 Operating Income $ 1,400
Big City gets a phone call from World wide Outdoor Furniture
They are interested in buying 480 cushions from Big City
. Acceptance of the order will not increase
Big City’s
variable selling and
administrative
costs.
Big City
has enough unused plant capacity to manufacture the a
ddition
al
cushions
(so
no increase in fixed costs)
.
Worldwide
has offered $
7
per
cushion
, which is below the normal sales of $1
4
per
cushion
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Big City Seat Cushions Inc. | ||
March 31, 2019 | Amount $ | |
Sales (in Units) | 4,200.00 | |
Variable Costs: Manufacturing | 25,200.00 | |
Variable Costs per unit | 6.00 | |
If Big City Seat Cushions Inc. sells to World wide Outdoor Furniture then this is the only additional cost per unit to be incurred by it and there will be no change in other costs. | ||
Incremental income statement | Amount $ | |
Sell price to World wide Outdoor Furniture | 7.00 | |
Variable Costs per unit | 6.00 | |
Incremental income per unit | 1.00 | |
Units to be sold | 480.00 | |
Incremental income | 480.00 | |
If Big City Seat Cushions Inc. sells to World wide Outdoor Furniture then it will earn Incremental income of $ 480 so proposal should be accepted. |