Ratzlaff Company has a current production level of 20,000 units per month. Unit costs at this level are:

Current monthly sales are 18,000 units. Jim Company has contacted Ratzlaff Company about purchasing 1,500 units at $2.00 each. Current sales would NOT be affected by the one-time-only special order, and variable marketing/distribution costs would NOT be incurred on the special order. What is Ratzlaff Company's change in operating profits if the special order is accepted?
A) $400 increase in operating profits
B) $400 decrease in operating profits
C) $1,800 increase in operating profits
D) $1,800 decrease in operating profits
E) $1,500 increase in operating profits

Question

Ratzlaff Company has a current production level of 20,000 units per month. Unit costs at this level are:

Current monthly sales are 18,000 units. Jim Company has contacted Ratzlaff Company about purchasing 1,500 units at $2.00 each. Current sales would NOT be affected by the one-time-only special order, and variable marketing/distribution costs would NOT be incurred on the special order. What is Ratzlaff Company's change in operating profits if the special order is accepted?
A) $400 increase in operating profits 
B) $400 decrease in operating profits 
C) $1,800 increase in operating profits 
D) $1,800 decrease in operating profits 
E) $1,500 increase in operating profits

Quizplus · Accepted Answer

Manufacturing cost per unit = $0.25 + $0.40 + $0.15 = $0.80; 1,500 × ($2.00 - $0.80) = $1,800 increase

Ratzlaff Company Has a Current Production Level of 20,000 Units