Rose Manufacturing Company had the following unit costs: A one-time customer has offered to buy 2,000 units at a special price of $48 per unit. Assuming that sufficient unused production capacity exists to produce the order and no regular customers will be affected by the order, how much additional profit or loss will be generated by accepting the special order?
A) $12,000 profit
B) $96,000 profit
C) $84,000 loss
D) $24,000 loss

Question

Rose Manufacturing Company had the following unit costs:  A one-time customer has offered to buy 2,000 units at a special price of $48 per unit. Assuming that sufficient unused production capacity exists to produce the order and no regular customers will be affected by the order, how much additional profit or loss will be generated by accepting the special order?
A) $12,000 profit 
B) $96,000 profit 
C) $84,000 loss 
D) $24,000 loss

Quizplus · Accepted Answer

To calculate the additional profit or loss from accepting the special order, we need to compare the incremental revenue from the order to the incremental cost of producing the additional units.

Incremental revenue = 2,000 units x $48 per unit = $96,000
Incremental cost = Direct materials + Direct labor + Variable overhead + Fixed overhead
Incremental cost = $12 + $10 + $6 + ($40,000/10,000 units) = $28 per unit
Incremental cost = 2,000 units x $28 per unit = $56,000

Therefore, the additional profit from accepting the special order would be:

Additional profit = Incremental revenue - Incremental cost
Additional profit = $96,000 - $56,000
Additional profit = $40,000 or $20 per unit

Since the incremental profit is positive, accepting the special order would generate additional profit of $12,000 (2,000 units x $20 per unit). Therefore, the best choice is A) $12,000 profit.

Rose Manufacturing Company Had the Following Unit Costs: a One-Time