Question

please answer to Part 1 b

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)
It is mentioned in question that Waterways reached near full capacity in production
hence, fixed costs would have been fully recovered, whatever additional production will
requires only variable costs.
If waterways agreed to provide 15000 units to canadian company, below are the profit calculations
Selling price per unit			3.9
Variable cost per unit			-2.3
Add shift increase in variable manufacturing cost	-0.3
reduction in variable selling cost		0.2
-------------	-------------	-------------	-------------	-------------	-------------
Profit per unit(3.9 - 2.3 - 0.3 + 0.2)		1.5
Total profit will be ( 15000X1.5) $22500.
yes, it is a wise decision to accept canadian company's offer as $22500 profit arises.

(b)
If waterways agreed to provide 2000 units to irrigation company, below are the profit calculations
special Selling price per unit	3.1
Variable cost per unit	-2.3
Marginal contribution per unit	0.8
Assumed waterways already recovered its fixed cost.
since there is a contribuion/ Profit of $1600 ( 2000X0.8), waterways should accept the offer.
(c)
The consequences of accepting the both special orders
Profit from canadian company's offer	22500
Profit from irrigation company's offer	1600
Additional profit from both offers	24100