It costs Concord Corporation $28 of variable costs and $16 of allocated fixed costs to produce...

It costs Concord Corporation $28 of variable costs and $16 of allocated fixed costs to produce an industrial trash can that sells for $82. A buyer in Mexico offers to purchase 3000 units at $33 each. Concord Corporation has excess capacity and can handle the additional production. What effect will acceptance of the offer have on net income?

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Expert Solution

Solution :

If concord corporation accept the offer there will be an increase in income :

Incremental Income = Incremental Revenue - Incremental Costs

= (3,000 * $ 33) + (3,000 * $ 28)

= $ 99,000 - 84,000

= $ 15,000

If concord corporation accept the offer, income will increase by $ 15,000.

Note : Allocated OH are fixed in nature and not directly incurred by product and therefore are irrelevant for decision making.

Please vote up and write your doubts in comment section. Would be glad to help you further.

ekkarill92 answered 1 year ago

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