Question 11 0 1 pts Potter United, a broom manufacturer, usually sells brooms fo

Question

Question 11 0 1 pts Potter United, a broom manufacturer, usually sells brooms for $45 each. The variable costs to make each broom is $20 and total fixed costs for the company are $10,000. At the moment, Potter United has excess capacity. A potential customer is trying to purchase 22,000 brooms from Potter United for $27 each. How much would Potter United's profit increase or decrease by ifit accepted this one time deal? Use a positive number to indicate an increase or a negative number to indicate a decrease.

Explanation / Answer

1 $ Selling price of the room for special offer                      27 Less: Variable cost to eah room                     (20) Contribution margin per room sale by accepting the offer                         7 Total contribution margin ( $ 7 x 22,000 rooms )             154,000 Total increase in profit by accepting the offer = $ 154,000 2 $ $ Service revenue ( 300 cars x $ 1,500 each ) (A )            450,000 Less: Operating expenses; Salaries and wages expenses             100,000 Rent expenses               18,000 Total operating expenses ( B )            118,000 Net income ( A ) - (B)            332,000 3 $ $ Ending balance of retained earnings ( A )               65,000 Beginning balance of retained earnings               43,000 Less: Dividend issued             (12,000) Retained earnings available after dividend ( B )               31,000 Net income during the year ( A ) - ( B )               34,000

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