Do It Review 122 Do It Review 122 Sarasota Company incurs a

Do It! Review 12-2

Do It! Review 12-2 Sarasota Company incurs a cost of $34.53 per unit, of which $20.63 is variable, to make a product that normally sells for $57.37. A foreign wholesaler offers to buy 5,600 units at $30.94 each. Sarasota will incur additional costs of $2.98 per unit to imprint a logo and to pay for shipping. Compute the increase or decrease in net income Sarasota will realize by accepting the special order, assuming Sarasota has sufficient excess operating capacity. (If amount decreases net income then enter the amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Reject Accept Net Income Increase (Decrease) Revenues $ $ $ Costs $ Net income $ $ $ Should Sarasota Company accept the special order? Sarasota company should AcceptReject the special order.

Solution

Answer

Unit

Cost per unit

Amount

Revenues if accepted

5600

$                       30.94

$                   173,264.00

Costs if accepted:

General Variable cost

5600

$                       20.63

$                   115,528.00

Addition extra cost

5600

$                          2.98

$                     16,688.00

Total cost

5600

$                       23.61

$                   132,216.00

----Fixed cost will not be relevant

Reject

Accept

Net Income Increase ( Decrease)

Revenues

$                                            -  

$             173,264.00

$                   173,264.00

Costs

$                                            -  

$             132,216.00

$                (132,216.00)

Net income

$                                            -  

$               41,048.00

$                     41,048.00

Since the Net Income is showing “Increase” of $ 41,048, the Offer SHOULD BE ACCEPTED.