Bluebird Manufacturing has received a special one-time order for 15,700 bird feeders at $3.70 per unit. Bluebird currently produces and sells 75,000 units at $7.70 each.

 Bluebird Manufacturing has received a special one-time order for 15,700 bird feeders at $3.70 per unit. Bluebird currently produces and sells 75,000 units at $7.70 each. This level represents 80% of its capacity. Production costs for these units are $4.20 per unit, which includes $2.95 of variable costs and $1.95 of fixed costs. If the special offer is accepted, there will be no incremental fixed cost. If Bluebird accepts this additional business, the effect on income will be:



Multiple Choice

$46,315 decrease.


$46,315 increase.


$7,850 decrease.


$58,090 increase.


$11,775 increase. Correct

Explanation
Special Offer Analysis    Per Unit    Total
Sales (15,700 units)    $ 3.70    $ 58,090
Variable costs    2.95    46,315
Contribution margin    0.75    11,775
Fixed costs (incremental)    0.00    0
Income    $ 0.75    $ 11,775

 

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