Time After Time, Inc

Essay

Time After Time, Inc. produces several models of clocks. Each clock consists of $10 of variable costs and $3 of fixed costs, and currently sells for $20. A foreign wholesaler offers to buy 5,000 clocks at $11 each, which Time After Time has the sufficient capacity to produce without affecting its current production and sales within the domestic market. Time after Time, however, would incur an additional $2 of shipping costs per clock to ship overseas. Instructions:
a. Determine the incremental income or loss that Time After Time would realize by accepting this special order.
b. What is the lowest acceptable special-order price that Time After Time would be willing to accept in order to accept the special order?