Question

The following information relates to the Klear Company for the upcoming year, based on 300,000 units: Amount Per Unit Sales $ 9,000,000 $ 30.00 Cost of goods sold 7,200,000 24.00 Gross margin 1,800,000 6.00 Operating expenses 675,000 2.25 Operating profits $ 1,125,000 $ 3.75 The cost of goods sold includes $3,000,000 of fixed manufacturing overhead; the operating expenses include $450,000 of fixed marketing expenses. A special order offering to buy 50,000 units for $25.00 per unit has been made to Klear. Fortunately, there will be no additional fixed costs associated with the order and Klear has sufficient capacity to handle the order.Required: a. How much will operating profits increase if Klear accepts the special order? b. Assume that Klear is operating at full capacity. How much will operating profits change if Klear accepts the special order?

Answer 1

Check the explanation

Step-by-step explanation:

a. going by the special order, profits increase by 512500

b. At full capacity, Parker will have to charge even the fixed costs since it will have to reduce normal sales, therefore by the order it is expected to receive only 25 per unit for which it at present receives 30 per unit for 50000 units. Profit decreases by 50000x5 = 250000.

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