Snapper Tool Company has a production capacity of 3,000 units per month, but current production is only 2,500 units. Total manufacturing costs are $60 per unit and marketing costs are $16 per unit. Doug Levy offers to purchase 500 units at $76 each for the next five months. Should Snapper accept the one-time-only special order if only absorption-costing data are available?
A) Yes, good customer relations are essential.
B) No, the company will only break even.
C) No, since only the employees will benefit.
D) Yes, since operating profits will most likely increase.
E) Yes, because breaking even is better than having idle capacity.

Question

Quizplus · Accepted Answer

Since the $60 absorption cost per unit is most likely not all variable costs and since the entire $16 per unit of marketing costs may not be incurred, operating profits will most likely increase.

Snapper Tool Company Has a Production Capacity of 3,000 Units