Goody Buy Electronics has received an offer from a customer for $21,600 to purchase 12,000 external hard drives.Good Buy has budgeted sales of 200,000 hard drives totaling $500,000, with fixed costs of $260,000 and total costs of $420,000.Assuming that Good Buy has the capacity to produce the additional units and that accepting this order will not affect any other orders, what effect will accepting the order have on Good Buy's profit?
A)Incremental profit will increase by $21,600
B)Incremental profit will decrease by $9,600
C)Incremental profit will increase by $12,000
D)Incremental profit will decrease by $3,600

Question

Quizplus · Accepted Answer

The incremental revenue from the customer's offer is: 
$21,600 / 12,000 = $1.80 per unit

Since Good Buy's total costs for producing 200,000 units is $420,000, the cost per unit is: 
$420,000 / 200,000 = $2.10 per unit

This means that the incremental profit per unit from the customer's offer is: 
$1.80 - $2.10 = -$0.30 per unit

However, since the customer's offer is for 12,000 units, the total incremental profit from accepting the order is: 
-$0.30 x 12,000 = -$3,600

Therefore, accepting the order will decrease Good Buy's incremental profit by $3,600.

Goody Buy Electronics Has Received an Offer from a Customer