ABC Company produces a single unit that it sells for $20 per unit. ABC has the c
ID: 2607584 • Letter: A
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.
Explanation / Answer
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