Question
Plairtrack Company manufactures lamps. Sparkit, a large retail merchandiser, wants to buy 250,000 lamps from Plairtrack Company for $11 each. Plairtrack Company normally sells 420,000
Plairtrack Company manufactures lamps. Sparkit, a large retail merchandiser, wants to buy 250,000 lamps from Plairtrack Company for $11 each.
Plairtrack Company normally sells 420,000 lamps a year at $16 each; its production capacity is a total of 600,000 units a year.
Below is the production cost information for the lamps:
Variable production costs per unit $6
Fixed manufacturing overhead per unit $7
Total production cost per unit $13
Total fixed manufacturing overhead costs will not change regardless of whether the special order is accepted.
Sparkit has indicated that the company is not interested in signing a contract for fewer than 250,000 lamps.
By how much will Plairtrack Companys net income change if this special order is accepted?
It will increase by $550,000.
It will decrease by $550,000.
It will increase by $1,250,000.
It will decrease by $1,250,000.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started