Question

ABC Company produces a single unit that it sells for $20 per unit. ABC has
the capacity to produce 28,000 units each month. ABC is currently selling
19,000 units each month. The costs associated with each unit appears below:
         
direct materials         $5.00                          
direct labor              2.50                          
variable overhead         1.00                          
fixed overhead            1.50
variable selling costs    4.00
fixed selling costs       0.75                

ABC Company has received a special order from a customer who wants to
purchase 18,000 units at a reduced price of $16 per unit. ABC Company
has determined that there would be no selling expenses in connection
with this special order. However, there would be an increased direct
material cost of $2 per unit for the special order units.

Calculate the increase in company profits if ABC Company accepts the
special order.

Answer 1

19000 Units Sold Without Special Order
Sales		380000
Direct Material 19000*5	95000
Direct Labor 19000*2.50	47500
variable selling costs 19000*4	76000
Variable Overhead 19000*1	19000
Total variable Cost		237500
Contrbution		142500
fixed overhead
fixed selling costs 1.50*28000	42000
fixed overhead .75*28000	21000
Total Fixed Cost		63000
Net Income		79500

28000 Units Sold WithSpecial Order
Sales 10000*20+18000*16		488000
Direct Material 10000*5+18000*7	176000
Direct Labor 28000*2.50	70000
variable selling costs 10000*4	40000
Variable Overhead 28000*1	28000
Total variable Cost		314000
Contrbution		174000
fixed overhead
fixed selling costs 1.50*28000	42000
fixed overhead .75*28000	21000
Total Fixed Cost		63000
Net Income		111000

crease in company profits if ABC Company accepts the
special order. 111000-79500 =$31500