It costs Bonita Industries 28 of variable costs and 12 of al

It costs Bonita Industries $28 of variable costs and $12 of allocated fixed costs to produce an industrial trash can that sells for $60. A buyer in Mexico offers to purchase 3000 units at $30 each. Bonita Industries has excess capacity and can handle the additional production. What effect will acceptance of the offer have on net income?

Solution

Since there is excess capacity to handle the additional production;only the variable costs would be incurred in the production of 3000 units for the buyer in Mexico and not the fixed costs .

Hence increase in income would be equal to=3000 units*(Sales-Variable costs)

=3000 units*(30-28)

=$6000 increase,