It costs Bonita Company $17.9 of variable costs and $8.0 of fixed costs to produce its product that sells for $39. Carla Vista Company, a foreign buyer, offers to purchase 3800 units at $23.1 each. If the special offer is accepted and produced with unused capacity, net income will:

Decrease by $10,640

Explanation:

The unused capacity ordinarily will not change the fixed component of cost but will increase the variable cost hence the net income increase or decrease is know as net contribution margin. However, given the fixed cost as a unit cost, it will be affected by the offer of accepted.

Net income is the result of sales less cost where the cost is made of the fixed and variable portions.

Net income increase/(decrease)

= 23.1 (3800) - 3800(17.9 + 8)

=3800( 23.1 - 25.9)

= ($10,640)

Accepting the offer will result in a decrease in net income

fall by less than $50.

Explanation:

The options are:

• fall by more than $50.

• fall by less than $50.

• rise by less than $50.

• rise by more than $50.

Expert Answer

Consumer surplus, is referred to as the economic measure of the excess benefit that a customer gets. The consumer surplus is the difference between the amount that the customer is willing to pay and the amount that he or she eventually pays.

Based on the question, the total Price paid is: 50 × $4 = $200

Total Revised Price = 50 × $5 = $250

Therefore, there will be a fall by $50 that's ($250 - $200).