Memory Division of Missing Byte,Inc. The Memory Division of Missing Byte,Inc.produces a high-quality computer chip.Unit production costs (based on capacity production of 100,000 units per year)follow:
Refer to Memory Division of Missing Byte,Inc.Assume,for this question only,that the Memory Division is presently operating at a level of 80,000 chips per year.Accepting a "special order" on 2,000 chips at $88 will
A)increase total corporate profits by $4,000.
B)increase total corporate profits by $20,000.
C)decrease total corporate profits by $14,000.
D)decrease total corporate profits by $24,000.

Question

Memory Division of Missing Byte,Inc. The Memory Division of Missing Byte,Inc.produces a high-quality computer chip.Unit production costs (based on capacity production of 100,000 units per year)follow:
 Refer to Memory Division of Missing Byte,Inc.Assume,for this question only,that the Memory Division is presently operating at a level of 80,000 chips per year.Accepting a "special order" on 2,000 chips at $88 will
A)increase total corporate profits by $4,000. 
B)increase total corporate profits by $20,000. 
C)decrease total corporate profits by $14,000. 
D)decrease total corporate profits by $24,000.

Quizplus · Accepted Answer

The unit production cost per chip is $50. If the Memory Division produces 80,000 chips, the total production cost will be $4,000,000 (80,000 x $50). The total revenue earned from accepting the special order is $176,000 (2,000 x $88). The profit from the production and sale of these 2,000 chips is $126,000 ($176,000 - $50 x 2,000). Therefore, accepting the special order will increase total corporate profits by $20,000 ($126,000 - $106,000).