US CMA Part 2 · Chapter 6 · Question 4 of 22
Assume instead that Bristow Valves (regular price $40, variable cost $24) is near full capacity. Accepting the 5,000-unit special order at $28 would require $1 per unit of extra shipping cost and would force Bristow to give up 2,000 units of regular sales. What is the effect on operating income?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Decrease of $17,000
Explanation
Contribution from the special order = 5,000 x ($28 - $24 - $1) = 5,000 x $3 = $15,000. Lost contribution on regular sales (opportunity cost) = 2,000 x ($40 - $24) = $32,000. Net effect = $15,000 - $32,000 = -$17,000, a decrease of $17,000.
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