Answer the following questions using the information below: Gerry\'s Generator S

ID: 2487672 • Letter: A

Question

Answer the following questions using the information below:

Gerry's Generator Supply is approached by Mr. Sandman, a new customer, to fulfill a large one-time-only

special order for a product similar to one offered to regular customers. Gerry's Generator Supply has

excess capacity. The following per unit data apply for sales to regular customers:

Direct materials $1,700.00

Direct manufacturing labor 100.00

Variable manufacturing support 200.00

Fixed manufacturing support 150.00

Total manufacturing costs 2,150.00

Markup (20%) 430.00

Estimated selling price $2,580.00

12) Before accepting this one-time-only special order, Gerry's Generators wants to know how much profit

would be made on the order:

A) $2,000

B) Loss of $150

C) $0

D) $430

I know the answer is C, but how?? Please explain clearly, thanks

Ans:The profit shall be zero because the minimum acceptable price of this one-time-only special order shall be 1700+100+200=2000

2000 is all variable cost that will be incured if order is eccepted

if Gerry's Generator charge $2000 from customer then it will only cover its cost nothing as so profit will be zero.

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