The company sells bikes for $700. The company currently sells 8,500, but has the capacity to produce 20,000. It costs $375 to produce the bikes. Of this cost $250 is variable cost and $125 is fixed cost. They have received an offer from a potential customer that wants to purchase 1,000 bikes at $400 per bike. However, this would also cause an incurrence of an additional $50,000 in fixed cost. No other cost would change if this offer is accepted. Which costs are irrelevant?Which costs are relevant? How much additional revenue would be earned if they accept the offer?How much additional cost would be incurred if they accept the offer?How much additional profit would be incurred if they accept the offer?Should the company accept the offer?If the company will only accept special orders if they make a profit of $10,000, would they accept this special offer?

Cost: The amount paid to purchase the asset, install it, and put it into operations, is referred to…

Answered: The company sells bikes for $700. The…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The company sells bikes for $700.
The company currently sells 8,500, but has the capacity to produce 20,000.
It costs $375 to produce the bikes.
Of this cost $250 is variable cost and $125 is fixed cost.
They have received an offer from a potential customer that wants to purchase 1,000 bikes at $400 per bike.
However, this would also cause an incurrence of an additional $50,000 in fixed cost.
No other cost would change if this offer is accepted.

Which costs are irrelevant?
Which costs are relevant?
How much additional revenue would be earned if they accept the offer?
How much additional cost would be incurred if they accept the offer?
How much additional profit would be incurred if they accept the offer?
Should the company accept the offer?

If the company will only accept special orders if they make a profit of $10,000, would they accept this special offer?

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