Variable expense is an expense varies with level of units
sold/produced thus it is relevant while making any decision since
it results in incremental cost .
Variable cost per unit incurred in case special offer is
accepted :52+28+11+(5-2)
= 52+28+11+3
= 94
Fixed cost remain constant irrespective of level of units
produced /sold thus it is irrelevant while making any decision
(unless any incremental cost is incurred or it is avoidable]
| Incremental revenue from special offer (2000*130) |
260000 |
| less:variable cost [94*2000] |
(188000) |
|
|
|
|
| Incremental profit
/(loss) |
72000 |
Operating income will increase by 72000 from acceptance
of offer.
**since there is enough idle capacity available ,there is no
loss of regular sales.
