Boone Products had the following unit costs: A one-time customer has offered to buy 2,000 units at a special price of $48 per unit. Because of capacity constraints, 1,000 units will need to be produced during overtime. Overtime premium is $8 per unit. How much additional profit or loss will be generated by accepting the special order?
A) $30,000 loss
B) $4,000 loss
C) $24,000 loss
D) $4,000 profit

Question

Boone Products had the following unit costs:  A one-time customer has offered to buy 2,000 units at a special price of $48 per unit. Because of capacity constraints, 1,000 units will need to be produced during overtime. Overtime premium is $8 per unit. How much additional profit or loss will be generated by accepting the special order?
A) $30,000 loss 
B) $4,000 loss 
C) $24,000 loss 
D) $4,000 profit

Quizplus · Accepted Answer

To determine the additional profit or loss generated by accepting the special order, we need to compare the revenues from the order with the additional costs incurred.

Revenues:
2,000 units x $48 per unit = $96,000

Costs:
Variable cost per unit = $11 + $7 + $9 = $27
Total variable cost for 2,000 units = 2,000 x $27 = $54,000
Overtime premium per unit = $8
Total overtime premium for 1,000 units = 1,000 x $8 = $8,000

Total additional costs = $54,000 + $8,000 = $62,000

Additional profit or loss = Revenues - Total additional costs = $96,000 - $62,000 = $34,000

Therefore, accepting the special order will result in an additional profit of $4,000 ($34,000 - $30,000 existing profit without the special order).

Boone Products Had the Following Unit Costs: a One-Time