The Buchanan Company has gathered the following information for a unit of its most popular product: The above cost information is based on 10,000 units.A distributor has offered to buy 2,000 units at a price of $32 per unit.The distributor claims this special order would not disturb regular sales at $42.Special packaging and other selling expenses would be an additional $0.50 per unit for the special order.How many units of regular sales could be lost before this contract is not profitable?
A)0 units.
B)950 units.
C)1,000 units.
D)2,000 units.
E)10,000 units.

Question

Quizplus · Accepted Answer

The contribution margin per unit is $42 - $28 = $14. The additional selling expenses for the special order are $0.50 per unit. So, the total contribution margin for the special order is $14 - $0.50 = $13.50 per unit. The company can afford to lose up to 2,000 units of regular sales before this contract is not profitable, because the contribution margin from the special order will cover the lost contribution margin from the regular sales.

The Buchanan Company Has Gathered the Following Information for a Unit