Rylan Corporation received an offer from an exporter for 25,000 units of product at $16 per unit. The acceptance of the offer will not affect normal production or domestic sales prices. The following data are available: Domestic unit sales price $22; Unit manufacturing costs: Variable 11; Fixed 6; What is the amount of the income or loss from acceptance of the offer? A. $25,000 loss B. $125,000 loss C. $125,000 income D. $25,000 income
Question
Rylan Corporation received an offer from an exporter for 25,000 units of product at 22; Unit manufacturing costs: Variable 11; Fixed 6; What is the amount of the income or loss from acceptance of the offer? A. 125,000 loss C. 25,000 income
Solution
To calculate the income or loss from the acceptance of the offer, we need to compare the offer price with the unit manufacturing cost.
Step 1: Calculate the total revenue from the offer The offer is for 25,000 units at 16/unit = $400,000.
Step 2: Calculate the total variable manufacturing cost The variable manufacturing cost per unit is 11/unit = $275,000.
Step 3: Calculate the income or loss Since the acceptance of the offer will not affect normal production, we do not need to consider the fixed costs. The income or loss from the acceptance of the offer would be the total revenue from the offer minus the total variable manufacturing cost. So, the income or loss would be 275,000 = $125,000.
Therefore, the amount of the income from acceptance of the offer is 125,000 income.
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