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Unformatted text preview: ing some course of action.
Opportunity costs are not actual dollar outlays
and are not recorded in the formal accounts of
How would this concept potentially relate to the
Essex Company? LO 2 Key Terms and Concepts
A special order is a one-time
order that is not considered
part of the company’s normal
ongoing business. When analyzing a special
order, only the incremental
costs and benefits are
LO 2 Special Orders Jet, Inc. makes a single product whose normal
selling price is $20 per unit.
A foreign distributor offers to purchase 3,000 units for
$10 per unit.
This is a one-time order that would not affect the
company’s regular business.
Annual capacity is 10,000 units, but Jet, Inc. is
currently producing and selling only 5,000 units. Should Jet accept the offer? LO 2 Special Orders
Contribution Income Statement
Revenue (5,000 × $20)
V ariable costs:
Total variable costs
Manufacturing overhead $ 28,000
Total fixed costs
Net operating income
LO 2 Special Orders
If Jet accepts the special order, the incremental revenue will
exceed the incremental costs. In other words, net
operating income will increase by $6,000.
Increase in revenue (3,000 × $10...
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