It costs Blakeley Company $20.90 of variable and $1.90 of allocated fixed costs to produce an industrial trash can that normally sells for $30.10. A buyer offers to purchase 2,500 units at $21.90 each. Blakeley has excess capacity and can handle the additional production. What effect will acceptance of the offer have on net income

The effect that the acceptance of the offer will have on net income is a decrease of $2,250.

Explanation:

This can be determined as follows:

Number of units offer to purchase by a buyer = 2,500

Price offered per unit by the buyer = $21.90

Variable cost per unit = $20.90

Allocated fixed costs per unit = $1.90

Total cost per unit = Variable cost per unit + Allocated fixed costs per unit = $20.90 + $1.90 = $22.80

Loss per unit of the offer = Price offered per unit by the buyer - Total cost per unit = $21.90 - $22.80 = -$0.90

Total loss of accepting the offer = Number of units offer to purchase by a buyer * Loss per unit of the offer = 2,500 * (-$0.90) = -$2,250

Since there is loss of $2,250 from accepting the offer, the effect that the acceptance of the offer will have on net income is a decrease of $2,250.

answer; someone must cover the cost associated with the provision of scarce goods in both sectors;

answer/// equals both average variable cost and average total cost at their respective minimums;