A product has a $100 per unit selling price, $40 variable cost per unit and $100

Question

A product has a $100 per unit selling price, $40 variable cost per unit and $100,000 of fixed costs. It currently sells 40,000 units and has capacity to produce another 100,000 units. A special order comes in for 5,000 units at a sales price of $80 each. The job will require $10 of overtime costs per unit and 2,000 of additional transportation costs. Assuming we accept the special order, how much will this increase our profit or <loss>?

Select one:

A. <$10,000>

B. $8,000

C. 0

D. $13,000

Explanation / Answer

Incremental analysis :

Incremental revenue (5000*80) 400000 Incremental Cost Variable cost (5000*40) -200000 Overtime cost (5000*10) -50000 Additional transportation cost -2000 Total incremental cost 252000 Incremental profit (loss) 148000

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