Burns Industries currently manufactures and sells 21,000 power saws per month, a

Question

Burns Industries currently manufactures and sells 21,000 power saws per month, although it has the capacity to produce 36,000 units per month. At the 21,000-unit-per-month level of production, the per-unit cost is $67, consisting of $41 in variable costs and $26 in fixed costs. Burns sells its saws to retail stores for $81 each. Allen Distributors has offered to purchase 5,100 saws per month at a reduced price. Burns can manufacture these additional units with no change in its present level of fixed manufacturing costs.

1. Assume that Allen Distributors offers to purchase the additional 5,100 saws at a price of $48 per unit. If Burns accepts this price, Burns' monthly gross profit on sales of power saws will:

Increase by $244,800.

Increase by $35,700.

Decrease by $168,300.

Decrease by $96,900.

2. Using an incremental analysis approach, Burns should consider accepting this special order only if the price per unit offered by Allen is at least:

$26.

$67.

$81.

$41.

3. Burns decides to accept the special order for 5,100 units from Allen at a unit sales price that will add $102,000 per month to its operating income. The unit price Burns charging Allen is:

$41.

$61.

$67.

$81.

1. Assume that Allen Distributors offers to purchase the additional 5,100 saws at a price of $48 per unit. If Burns accepts this price, Burns' monthly gross profit on sales of power saws will:

Explanation / Answer

Ans 1 Increase in Gross Profit No of units *Contribution 5100*7 35,700.00 Ans 2 41 Sale price at least to be equal to VC Ans 3 Contribution Incremantal Operating Income/No of units 102000/5100 20 Sales Price=VC +C=41+20 61

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