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Carla Vista Enterprises produces giant stuffed bears

Special Order/ Incremental revenues and costs.

Carla Vista Enterprises produces giant stuffed bears. Each bear consists of $16 of variable costs and $13 of fixed costs and sells for $49. A wholesaler offers to buy 7,680 units at $18 each, for which Carla Vista has the capacity to produce. Carla Vista will incur extra shipping costs of $1 per bear.
Determine the incremental income or loss that Carla Vista Enterprises would realize by accepting the special order.

Answer:

Incremental Profit of $7,680

Explanation:

Special order means, the fixed costs can be ignored for this purpose and only incremental costs will be relevant.

Selling Price = $18

Cost = $16 + 1 =$17
Profit = $18 – 17 = $1

Total Incremental Profit = $1 x 7,680 = $7,680

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