A company sells bikes for $600 each. The company currently sells 7,500 bikes per year and could make as many as 10,000 bikes per year. The bikes cost $450 each to make: $300 in variable costs per bike and $150 of fixed costs per bike.

 A company sells bikes for $600 each. The company currently sells 7,500 bikes per year and could make as many as 10,000 bikes per year. The bikes cost $450 each to make: $300 in variable costs per bike and $150 of fixed costs per bike. The company receives an offer from a potential customer who wants to buy 1,500 bikes for $500 each. Incremental fixed costs to make this order are $120 per bike. No other costs will change if this order is accepted. Income for the special offer is:

Multiple Choice

$300,000.


$(105,000).


$750,000.


$270,000.


$120,000. Correct
Explanation
Special Offer Analysis    Per Unit    Total
Sales (1,500 units)    $ 500    $ 750,000
Variable costs    300    450,000
Contribution margin    200    300,000
Fixed costs (incremental)    120    180,000
Income    $ 80    $ 120,000