Question

Cranberry has received a special order for 110 units of its product at a special price of $2,200. The product normally sells for $2,700 and has the following manufacturing costs: Per unit Direct materials $ 740 Direct labor 440 Variable manufacturing overhead 540 Fixed manufacturing overhead 640 Unit cost $ 2,360 Assume that Cranberry has sufficient capacity to fill the order without harming normal production and sales. If Cranberry accepts the order, what effect will the order have on the company’s short-term profit? Multiple Choice

a $17,600 decrease

b $52,800 increase

c $17,600 increase

d $70,400 decrease

Answer 1

Answer: b. $52,800 increase

Calculations:

Variable cost per unit
Direct materials	$740
direct labor	$440
Variable manufacturing overhead	$540
Total variable cost per unit	$1,720
Increase(decrease) in short profit
Selling price of special order [110 x $2,200]	$242,000
(Less): Variable cost [110 x $1,720]	($189,200)
Increase in company's short-term profit	$52,800

Thus option b is correct and remaining options are incorrect.