Reference no: EM133121408

Question - A company produces standard pens in automated manufacturing. The machines operate at a maximum capacity of 4,600 standard pens per hour. The variable cost of producing one standard pen is £0.30, and the unit price of standard pens is £0.35. A customer has recently approached the company with a special order of 1,000,000 units of a specialty pen for which they would pay £2.00 per unit. To fulfil this order, the company would need to reconfigure their machines to produce this type of pen at a cost of £80,000. Because the specialty pen is more complex than the standard pen, the machines would only produce 2,000 units per hour. The unit variable cost to manufacture the specialty pen would be £1.90. The company has a total capacity of 8,000 machine-hours and its fixed costs, excluding the cost to reconfigure the machines for the specialty pen, are £1,050,000. The current demand for standard pens is 35,000,000 units. What is the change in operating profit for the company if the order is accepted (rounded to the nearest thousand)?

A. Decrease of £5,000

B. Increase of £20,000

C. Decrease of £70,000

D. Increase of £100,000

E. Increase of £80,000