Question

Question 6 View Policies Current Attempt in Progress Waterways mass-produces a special connector unit that it normally sells for $4.30. It sells approximately 33,300 of these units each year. The variable costs for each unit are $2.40. A company in Canada that has been unable to produce enough of a similar connector to meet customer demand would like to buy 15,800 of these units at $2.70 per unit. The production of these units is near full capacity at Waterways, so to accept the offer from the Canadian company would require temporarily adding another shift to its production line. To do this would increase variable manufacturing costs by $0.30 per unit. However, variable selling costs would be reduced by $0.20 a unit. An irrigation company has asked for a special order of 1,900 of the connectors. To meet this special order, Waterways would not need an additional shift, and the irrigation company is willing to pay $3.30 per unit. What are the consequences of Waterways agreeing to provide the 15,800 units to the Canadian company? Would this be a wise "special order" to accept? Waterways accept the special order because net income by $ should not should e Textbook and Media increases decreases Should Waterways accept the special order from the irrigation company? Waterways accept the special order because net income by $ What would be the consequences of accepting both special orders? Accepting both special orders would net income by $ increase e Textbook and Media decrease

Answer 1

Effect of accepting the Canadian Company order = Incremental Income – Incremental Expenses

= [2.70 - (2.40+0.30-0.20)]*15,800

= $3,160

SHOULD ACCEPT

Increases by $3,160

Effect on income from order of irrigation company = (3.30-2.40)*1,900 = $1,710

Yes, should accept

Income increases by $1,710

Accepting both will increase income by $4,870