The Print Shop produces and sells 20,000 high-speed rolls of film per month at a

Question

The Print Shop produces and sells 20,000 high-speed rolls of film per month at a normal sales price of $10 per roll. The costs to produce one roll of film are variable costs of $3.50 and $ 20,000 of fixed overhead. A special order for 3,000 rolls of film at $6.00 per roll has been received. Assuming fixed overhead costs will not increase and present sales will not be affected, by what amount will the firms' profit change if the special order is accepted? Select one: a. Increase by $4,500 b. Decrease by $12,000 c. Increase by $18,000 d. Increase by $7,500

Explanation / Answer

Solution : d. Increase by $7,500

working:

profit = Sale - variable cost

= 3,000 x $6 - 3,000 x $3.50

= $7,500

[ note : fixed overhead is not considered since, fixed overhead will not increase due to special order]

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