Accent Furniture has a capacity of 30,000 desk chairs per year and is currently selling all 20,000 for $240 each.Country Bank has approached Accent with an offer to buy 800 chairs for only $210 each.Accent has a normal variable cost of $165 per chair, including $50 per unit in direct labor per chair.Accent can produce the special order on an overtime shift.This would result in direct labor being paid overtime at 150% of the normal pay rate.The annual fixed costs will be unaffected by the special order and it will not affect any of its other operations.What will be the impact on profit of accepting the order?
A)Profit will decrease by $24,000.
B)Profit will increase by $16,000.
C)Profit will increase by $36,000.
D)Profit will decrease by $4,000.

Question

Quizplus · Accepted Answer

The profit will increase by $16,000. This is calculated by first determining the increased cost of direct labor for the special order, which is $50 * 150% = $75 per chair. The total variable cost per chair for the special order is $165 + $25 (the increase in labor cost) = $190. Selling the chairs at $210 each results in a profit of $20 per chair. For 800 chairs, this equals $16,000 additional profit.

Accent Furniture Has a Capacity of 30,000 Desk Chairs Per