Solution-What is effect on profits if the special order is

What is effect on profits if the special order is accepted

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Question - Modesto Company produces CD players for home stereo units. The CD players are sold to retail stores for $30. Manufacturing and other costs are as follows:

Variable costs per unit:		Fixed costs per month:
Direct materials	$9.00	Factory overhead	$120,000
Direct labor	4.50	Selling and admin.	60,000
Factory overhead	3.00	Total	$180,000
Distribution	1.50
Total	$18.00

The variable distribution costs are for transportation to the retail stores. The current production and sales volume is 20,000 per year. Capacity is 25,000 units per year.

A San Diego wholesaler has proposed to place a special one-time order of 10,000 units at a reduced price of $24 per unit. The wholesaler would pay all distribution costs, but there would be additional fixed selling and administrative costs of $3,000. All other information remains the same as the original data. What is the effect on profits if the special order is accepted?

a. increase of $12,000

b. increase of $75,000

c. decrease of $168,000

d. increase of $57,000

Reference no: EM133188249

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What is effect on profits if the special order is accepted

Reference no: EM133188249

Reference no: EM133188249

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