Question

Jansen Crafters has the capacity to produce 50,000 oak shelves per year and is currently selling 44,000 shelves for $32 each. Cutrate Furniture approached Jansen about buying 1,200 shelves for bookcases it is building and is willing to pay $26 for each shelf. No packaging will be required for the bulk order. Jansen usually packages shelves for Home Depot at a price of $1.50 per shelf. The $1.50 per-shelf cost is included in the unit variable cost of $27, with annual fixed costs of $320,000. However, the $1.50 packaging cost will not apply in this case. The fixed costs will be unaffected by the special order and the company has the capacity to accept the order. Based on this information, what would be the profit if Jansen accepts the special order?

A.Profits will increase by $31,200.

B.Profits will decrease by $1,200.

C.Profits will increase by $7,200.

D.Profits will increase by $600.

Answer 1

Correct answer---------D.Profits will increase by $600.

Working

financial advantage (disadvantage) of accepting the special order
Additional Revenue from offer (1200 x $26)	$        31,200.00
Less: Total Additional cost due to acceptance of offer	$        30,600.00
Financial Advantage	$              600.00

.

Calculation of Additional Cost of Order
	Per Unit	Total
Relevant variable cost	$                25.50	$          30,600.00