Able Company's unit manufacturing cost is: $\begin{array}{lr}
\text { Variable Costs } & \$ 50 \
\text { Fixed Costs } & 25
\end{array}$ A special order for 2,000 units has been received from a foreign company. The unit price requested is $55. The normal unit price is $80. If the order is accepted, unit variable costs will increase by $2 for additional freight costs. If the order is accepted, incremental profit (loss) will be
A) $(46,000).
B) $6,000.
C) $(40,000).
D) $10,000.

Question

Quizplus · Accepted Answer

The incremental profit can be calculated by subtracting the incremental costs from the incremental revenues. The incremental revenue is $55 per unit for 2,000 units, which equals $110,000. The incremental costs include the original variable cost of $50 plus the additional $2 freight cost, totaling $52 per unit for 2,000 units, which equals $104,000. Subtracting the incremental costs ($104,000) from the incremental revenues ($110,000) gives an incremental profit of $6,000. Fixed costs are not considered in the incremental analysis because they do not change with the special order.

Able Company's Unit Manufacturing Cost Is Variable Costs $50 Fixed Costs 25\begin{array}{lr}\text { Variable Costs } & \$ 50 \\\text { Fixed Costs } & 25\end{array} Variable Costs Fixed Costs ​$5025​

Able Company's Unit Manufacturing Cost Is $\begin{array}{lr}\text { Variable Costs } & \$ 50 \\\text { Fixed Costs } & 25\end{array}$