The following operating information reports the results of Bramble Company’s production and sale of 12,500 air-conditioned motorcycle helmets last year. Based on early market forecasts, Bramble expects the same results this year. Sales $2,022,000 Variable manufacturing expenses 885,000 Fixed manufacturing expenses 273,000 Variable selling and administrative expenses 120,000 Fixed selling and administrative expenses 226,000 The American Motorcycle Club has offered to purchase 1,900 helmets at a price of $100 each. Bramble has sufficient idle capacity to fill the order, which would not affect the company’s cost structure or regular sales. If Bramble accepts this order, by how much will its income increase or decrease?

Effect on income= $37,240 increase

Explanation:

Giving the following information:

Production= 12,500 units

Variable manufacturing expenses 885,000

Variable selling and administrative expenses 120,000

The American Motorcycle Club has offered to purchase 1,900 helmets for $100 each.

Because it is a special offer and there is unused capacity, we will not take into account the fixed costs.

First, we need to calculate the unitary variable costs:

Unitary variable manufacturing expense= 885,000/12,500= $70.8

Unitary selling and administrative expenses= 120,000/12,500= $9.6

Total variable cost= $80.4

Effect on income= 1,900*(100 - 80.4)= $37,240 increase

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