Question

please answer to Part 1 c

please show your work how to get that number and no hand writing plz thanks

Waterways Corporation is considering various business opportunities. It wants to make the best use of its production facilities to maximize income. This problem asks you to help Waterways do incremental analysis on these various opportunities.

Part 1 Waterways mass-produces a special connector unit that it normally sells for $3.90. It sells approximately 35,000 of these units each year. The variable costs for each unit are $2.30. A company in Canada that has been unable to produce enough of a similar connector to meet customer demand would like to buy 15,000 of these units at $2.60 per unit. The production of these units is near full capacity at Waterways, so to accept the offer from the Canadian company would require temporarily adding another shift to its production line. To do this would increase variable manufacturing costs by $0.30 per unit. However, variable selling costs would be reduced by $0.20 a unit. An irrigation company has asked for a special order of 2,000 of the connectors. To meet this special order, Waterways would not need an additional shift, and the irrigation company is willing to pay $3.10 per unit. Instructions Given the information above:

(a) What are the consequences of Waterways agreeing to provide the 15,000 units to the Canadian company? Would this be a wise “special order” to accept?

(b) Should Waterways accept the special order from the irrigation company?

(c) What would be the consequences of accepting both special orders?

Answer 1

a.If Company accept Canadian Co. Order

Particulars
	Present Condition	Additional Units
Sale (unit)	35,000	15,000
Sale price/unit	3.90	2.60
Sale amount	136,500	39,000
Less: Variable Cost at Present Condition (2.30*35,000)             Variable Cost For Additional Units (2.30 + 0.30)*15,000	(80,500)	(39,000)
Add : Saving in Selling exp ('0.20*15,000)		3,000
Gross Profit	$56,000	$3,000
Total Gross profit of the company will be 56,000+3,000 = $ 59,000.

Hence Waterways should Accept the order because net income increase by $3,000

b.If Company accept Irrigation Order

Effect on income from order of irrigation company

                 = (unit Sale Price - Unit Variable Cost)* Sales Units
                 = (3.10 - 2.30)*2,000
                   = $1,600

Waterways should accept the offer from irrigation company since net income increase by $1,600

c.If Company accept Both Order

On Accepting both offers, Net Income Increase = $3,000+$1,600 =$4,600

Hence, Accepting both offers would increase net income by $4,600. So we can accept both the orders as both of it will increase the income of waterways corporation.