1. Bertans has received a special order for 4,200 units of its product at a spec
ID: 2569526 • Letter: 1
Question
1. Bertans has received a special order for 4,200 units of its product at a special price of $22. The product normally sells for $33 and has the following manufacturing costs:
Per unit
Direct materials
$
8
Direct labor
4
Variable manufacturing overhead
3
Fixed manufacturing overhead
2
Unit cost
$
17
Assume that Bertans has sufficient capacity to fill the order. If Bertans accepts the order, what effect will the order have on the company’s short-term profit?
2. Bertans has received a special order for 4,200 units of its product at a special price of $22. The product normally sells for $33 and has the following manufacturing costs:
Per unit
Direct materials
$
8
Direct labor
4
Variable manufacturing overhead
3
Fixed manufacturing overhead
2
Unit cost
$
17
Assume that Bertans' production is at full capacity. If Bertans accepts the order, what effect will the order have on the company’s short-term profit?
Wanted to know why I got the first one right and the second one wrong I put 29,400 for both
Per unit
Direct materials
$
8
Direct labor
4
Variable manufacturing overhead
3
Fixed manufacturing overhead
2
Unit cost
$
17
Explanation / Answer
As far as first question you are right :
increased contribution margin is $7($22--$8-$4-$3)
Total increased profit=$7×4200 =$29,400
But when company is operating at full capacity, it has to loss it's sales to normal customers to fulfill the special order.
Contribution margin lost if special order is accepted=$33-$8-$4-$3
=$18 per unit
Total contribution lost on normal customers=$18×4200 units
=$75,600
So decrease in operating profit due to acceptance of special order :
=$75,600-$29,400
=$46,200
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