Question

The Young Company has gathered the following information for a unit of its most popular product: Direct materials $ 12 Direct labor 6 Overhead (40% variable) 10 Cost to manufacture 28 Desired markup (50%) 14 Target selling price $ 42 The above cost information is based on 10,000 units. A distributor has offered to buy 2,000 units at a price of $32 per unit. This special order would not disturb regular sales. Special packaging and other selling expenses would be an additional $0.50 per unit for the special order. If the special order is accepted, Young's operating profits will increase by:

Answer 1

$19,000

Explanation :

Results from Special Order :

Sales (2,000 x $32) $64,000

Less Variable Costs ($22.50 x 2,000) ($45,000)

Contribution $19,000

Therefore,

Young's operating profits will increase by $19,000