Black Corporaion manufactures a product with the following full unit costs at a

Question

Black Corporaion manufactures a product with the following full unit costs at a volume of 4,000 units Direct materials $200 Direct labor 80 Manufacturing OH (30% variable) 150 Selling exxpenses (50% variable) 50 Admin expenses (10% variable) 80 Total per unit $560 A company recently approached Black Corp with an offer to purchase 450 units $550 each. Black currently sells for $800 each. Capacity is sufficient to produce the extra 450 units. No selling expenses would be incured on the special order. If Black Corp accepts the offer, profits will: a. Decrease by $120 b. Increase by $66,800 c. Increase by $97,650 d. Decrease bt $24,000

Explanation / Answer

Existing Units 4000 Cost Relevant cost Direct material $200 Relevant cost Direct labor $80 Relevant cost Manufcaturing OH $150 Variable $45 Relevant cost Fixed $105 Selling expenses Variable $25 Relevant cost Fixed $25 Admin expenses Variable $8 Relevant cost Fixed $72 Total $510 Total relevant cost for decision making ($200+$80+$45+$25+$8) $358 Less selling expenses ($25) Relevant cost $333 Offer price of new order $550 Net profit $217 Units of order 450 Increase in profit 97650 Therefore, profit will increase by $97,650 Therefore, option c. Increase by $97,650 is correct

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