Chapter 12 Full Student Version [Read-Only]

In other words net operating income will increase by

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Unformatted text preview: net operating income will increase by $6,000. This suggests that Jet should accept the order. I ncrease Increase in revenue (3,000 × $10) I ncrease in costs (3,000 × $8 variable cost) I ncrease in net operating income 12-26 $ 30,000 24,000 $ 6,000 Note: This answer assumes that the fixed costs are unavoidable and that variable marketing costs must be incurred on the special order. 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 relevant. 12-27 Key Terms and Concepts When a limited resource of some type restricts the company’s ability to satisfy demand, the company is said to have a constraint. The machine or process that is limiting overall output is called the bottleneck – it is the constraint. 12-28 Utilization of a Constrained Resource When When a constraint exists, a company should select a product mix that maximizes the total contribution margin earned since fixed costs usually remain unchanged. A company sho...
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