When analyzing a special order only the incremental

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Unformatted text preview: ounting 12-24 Special Orders: An Example 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? Managerial Accounting Special Orders: An Example (current Jet income statement before effects of special order) Jet, Inc. Contribution Income Statement Revenue (5,000 × $20) $ 100,000 V ariable costs: Direct materials $ 20,000 Direct labour 5,000 $8 Manufacturing overhead 10,000 $8 variable cost Marketing costs 5,000 Total variable costs 40,000 Contribution margin 60,000 Fixed costs: Manufacturing overhead $ 28,000 Marketing costs 20,000 Total fixed costs 48,000 Net operating income $ 12,000 Managerial Accounting 12-25 12-26 Special Orders: An Example If Jet accepts the offer, operating income will increase by $6,000. Increase in revenue (3,000 × $10) I ncrease in costs (3,000 × $8 variable cost) I ncrease in net income $ 30,00...
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