Question

In a lean accounting environment, a company accepts a special order to make 200 units of a product each month for the next 2 months for $130 per unit. The company normally sells the unit for $170 per unit with variable costs per unit at $80. The company plans to use excess capacity. By what amount would this special order increase profit?

Answer 1

$20,000

Step-by-step explanation:

Data provided in the question:

Number of units made each month = 200 units

Number of months = 2

New Selling cost for the products per unit = $130

Variable cost per unit = $80

Now,

Total number of units produced = 2 × 200

= 400 units

Contribution margin = New Selling cost - Variable cost per unit

= $130 - $80

= $50

Therefore,

Increase profit = Total number of units produced × Contribution margin

= 400 × $50

= $20,000