The following information relates to the Magna Company for the upcoming year, based on 400,000 units.
$\begin{array}{lrr}
&\text { Amount}&\text { Per Unit}\
\text { Sales } & \$ 4,000,000 & \$ 10.00\
\text { Cost of goods sold } & \underline{3,200,000} & \underline{8.00 }\
\text { Gross margin } & 800,000& 2.00 \
\text { Operating expenses } &\underline{ 300,000 }&\underline{ 0.75} \
\text { Operating profits } & \underline{ \$ 500,000} &\underline{ \$ 1.25}
\end{array}$

The cost of goods sold includes $1,200,000 of fixed manufacturing overhead; the operating expenses include $100,000 of fixed marketing expenses. A special order offering to buy 50,000 units for $7.50 per unit has been made to Magna. Fortunately, there will be no additional operating expenses associated with the order and Magna has sufficient capacity to handle the order. How much will operate profits be increased if Magna accepts the special order?
A) $25,000.
B) $62,500.
C) $100,000.
D) $125,000.

Question

The following information relates to the Magna Company for the upcoming year, based on 400,000 units.
$\begin{array}{lrr}
&\text { Amount}&\text {  Per Unit}\
\text { Sales } & \$ 4,000,000 & \$ 10.00\
\text { Cost of goods sold } & \underline{3,200,000} & \underline{8.00 }\
\text { Gross margin } & 800,000& 2.00 \
\text { Operating expenses } &\underline{ 300,000 }&\underline{ 0.75} \
\text { Operating profits } & \underline{ \$ 500,000} &\underline{  \$ 1.25}
\end{array}$

The cost of goods sold includes $1,200,000 of fixed manufacturing overhead; the operating expenses include $100,000 of fixed marketing expenses. A special order offering to buy 50,000 units for $7.50 per unit has been made to Magna. Fortunately, there will be no additional operating expenses associated with the order and Magna has sufficient capacity to handle the order. How much will operate profits be increased if Magna accepts the special order?
A) $25,000.
B) $62,500.
C) $100,000.
D) $125,000.

Quizplus · Accepted Answer

The special order price per unit is $7.50, and the variable cost per unit is $6.00 ($8.00 COGS - $1.50 fixed overhead per unit). The contribution margin per unit for the special order is $1.50 ($7.50 - $6.00). For 50,000 units, the increase in operating profits is $1.50 * 50,000 = $75,000.

The Following Information Relates to the Magna Company for the Upcoming