Question

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

Answer 1

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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.