Garland Company has a capacity of 50,000 units per year and is currently selling

Question

Garland Company has a capacity of 50,000 units per year and is currently selling all 50,000 for $500 each. Garcia Company has approached Garland about buying 5,000 units for only $450 each. Garland has a normal variable cost of $380 per unit, including $50 per unit in direct labor. Garland could produce the special order on an overtime shift. This would result in direct labor being paid overtime at 150% of the normal pay rate. Additionally, $50,000 in additional fixed costs would be association with the order. What will be the impact on profits of accepting the order?

Explanation / Answer

Revenues 5,000* 450= 2,250,000 Normal variable costs 5,000* 380 1,900,000 Additional direct labor 25 *5,000 125,000 Additional fixed costs 50,000 Total costs 2,075,000 Profits 175,000

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