Question

Assume that Cane expects to produce and sell 106,000 Betas during the current year. One of Cane’s sales representatives has found a new customer who is willing to buy 4,000 additional Betas for a price of $74 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?

Answer 1

The first part of the question is missing, so I looked for a similar question to fill in the blanks:

Relevant production costs per unit:

• Direct material $30
• Direct labor $20
• Variable manufacturing overhead $7
• Variable selling expenses $12
• Total relevant costs per unit $69

incremental revenue if special order is accepted = 4,000 x $74 = $296,000

incremental costs if special order is accepted = 4,000 x $69 = $276,000

financial advantage of accepting special order = $296,000 - $276,000 = $20,000

If the special order is accepted, operating profits will increase by $20,000