What is the net segment income of the contract

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Reference no: EM132159552

An equipment manufacturer is in the third year of a 6 year contract for ABCD corporation. The contract calls for annual production of 30,000 units at a selling price of $45 per unit. Variable costs are $25 per unit and direct fixed costs are $100,000 per year. A new customer (XYZ corporation) approaches you and asks you to produce on a one time basis (i.e. no follow up contract) 60,000 units of the same equipment at a selling price of $35. There are no incremental direct fixed costs. (a) What is the net segment income of the ABCD contract per year and over the 6 year life of the contract? (b) What is the net segment income of the XYZ contract? (c) If the contract with ABCD calls for you to reduce your selling price for the rest of the 6 year contract to that of XYZ, what is the real value of the XYZ contract?

Reference no: EM132159552

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