Braizen, Inc. produces a product with a $30 per-unit variable cost and an $80 per-unit sales price. Fixed manufacturing overhead costs are $100,000. The firm has a one-time opportunity to sell an additional 1,000 units at $60 each that would not affect its current sales. Assuming the company has sufficient capacity to produce the additional units, how would the acceptance of the special order affect net income?
A) income would decrease by $30,000.
B) income would increase by $30,000.
C) income would increase by $140,000.
D)income would increase by $40,000.

Question

Quizplus · Accepted Answer

The variable cost of the special order is $30 per unit, which means the total variable cost for 1,000 units is $30,000 ($30 x 1,000). 
The additional revenue from the special order is $60 per unit, which means the total revenue of the special order is $60,000 ($60 x 1,000). 
The contribution margin per unit is $80 - $30 = $50. Therefore, the total contribution margin for the special order is $50,000 ($50 x 1,000). 
As fixed manufacturing overhead costs are not affected by the special order, the total fixed cost remains the same at $100,000. 
Adding the contribution margin of $50,000 to the company's original net income without the special order ($80 - $30 = $50 x Q - $100,000), where Q is the number of units the company sells, will result in an increase of $30,000 in net income.