Question

# ABC Company produces a single unit that it sells for \$20 per unit. ABC has the...

```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 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.
```

 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
```

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