Question

Hartford, Inc. manufactures a single product. Shown are projected revenues and costs based on last year's income statement (8,000 units) and practical capacity (10,000 units). The costs are either variable, fixed, or mixed (part variable and part fixed.) You need to figure out what the cost type is based on the cost behavior.Last Year(8,000 units) Practical Capacity(10,000 units) Total Per Unit Total Per UnitRevenue $800,000 $100.00 $1,000,000 $100.00Costs: Direct Material $200,000 $25.00 $250,000 $25.00Direct Labor $160,000 $20.00 $200,000 $20.00Mfg. Overhead $180,000 $22.50 $200,000 $20.00Selling Expenses $40,000 $5.00 $50,000 $5.00Admin. Expenses $50,000 $6.25 $50,000 $5.00Total Costs $630,000 $78.75 $750,000 $75.00Pre-Tax Profit $170,000 $250,000 RequiredAssume that Hartford expects to sell the same number of units as last year in their normal distribution channels (8,000 units). They have received an offer from a one-time customer (not part of their normal customer mix) to buy 1,000 units (additional to their expected normal sales) at a price of $71. By how many dollars would pre-tax profit increase or decrease if Hartford accepts the special order? (9 points)

Answer 1

Hartford, Inc.

If Hartford accepts the special order, the pre-tax profit would increase by

= $21,000.

Step-by-step explanation:

a) Data and Calculations:

Production and sales capacity last year = 8,000 units

Practical capacity = 10,000 units

Last Year Practical Capacity

(8,000 units) (10,000 units)

Total Per Unit Total Per Unit

Revenue $800,000 $100.00 $1,000,000 $100.00

Costs:

Direct Material $200,000 $25.00 $250,000 $25.00

Direct Labor $160,000 $20.00 $200,000 $20.00

Mfg. Overhead $180,000 $22.50 $200,000 $20.00

Selling Expenses $40,000 $5.00 $50,000 $5.00

Admin. Expenses $50,000 $6.25 $50,000 $5.00

Total Costs $630,000 $78.75 $750,000 $75.00

Pre-Tax Profit $170,000 $250,000

Variable cost per unit $50.00 $50.00

Fixed cost $230,000 $250,000

Sales revenue from the one-time customer = $71,000

Variable cost per unit 50,000

Additional pre-tax profit (increase) $21,000