Incremental Analysis - Accepting a Special Order

question 71

Essay

Incremental analysis - accepting a special order
Essential Company normally produces and sells 4,000 video monitors for personal computers each month.Variable manufacturing costs amount to $62 per unit,and fixed manufacturing costs are $170,000 per month.The regular sales price of the monitors is $140 per unit.The company is considering a special order from a foreign computer maker to buy an additional 1,000 monitors per month at a special price of $70 per unit.Filling this special order would not affect Essential Company's regular sales volume or fixed manufacturing costs.
(a)The average cost per unit at the 4,000-unit-per-month production level is $________ per unit.
(b)The average cost per unit at the 5,000-unit-per-month production level is $________ per unit.
(c)The amount of increase or decrease (indicate the correct term)in Essential Company's operating income that would result from accepting the special order is $________.

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Definitions:

Latent Period

The time interval between the application of a stimulus and the response, common in muscle physiology and reaction time studies.

Excitation-Coupling

The process linking muscle fiber excitation to contractions via the transduction of electrical signals to mechanical actions.

Refractory

Resistant to treatment or control, often used to describe a period of unresponsiveness or insensitivity to stimuli.

Power Stroke

The phase in muscle contraction where the myosin head pivots, pulling the actin filament towards the center of the sarcomere, shortening the muscle.