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Knockdown Products normally sells boxing gloves for $85 a pair. Knockdown just received a special order for 1,500 pair at a price of $50 a pair. To purchase, store, and ship the gloves, it costs a total of $55 a pair, which consists of $43 in variable costs and $12 in fixed costs.
-Assuming Knockdown has enough excess gloves on hand to fill the special order,it should:
A)reject the offer since income will decrease by $7,500
B)accept the offer since income will increase by $7,500
C)reject the offer since income will decrease by $10,500
D)accept the offer since income will increase by $10,500

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Knockdown Products normally sells boxing gloves for $85 a pair. Knockdown just received a special order for 1,500 pair at a price of $50 a pair. To purchase, store, and ship the gloves, it costs a total of $55 a pair, which consists of $43 in variable costs and $12 in fixed costs.
-Assuming Knockdown has enough excess gloves on hand to fill the special order,it should:
A)reject the offer since income will decrease by $7,500
B)accept the offer since income will increase by $7,500
C)reject the offer since income will decrease by $10,500
D)accept the offer since income will increase by $10,500

Quizplus · Accepted Answer

To calculate the income that will be earned from the special order, we first need to calculate the cost of goods sold for each pair of gloves:
Variable costs + cost to purchase = $43 + $50 = $93

Therefore, the profit per pair of gloves sold for the special order is $85 - $93 = -$8.

However, Knockdown will still earn $55 per pair sold, which consists of $50 for the sale price and $5 for the fixed costs.

Therefore, the total income earned from the special order would be:
$55 x 1,500 = $82,500

This is an increase of $10,500 from their normal income of $85 x 1,500 = $127,500. Therefore, the best choice is to accept the offer since income will increase by $10,500.

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