Missouri Company has a current production capacity level of 200,000 units per month.At this level of production,variable costs are $0.50 per unit and fixed costs are $0.50 per unit.Current monthly sales are 173,000 units.Gates Company has contracted Missouri Company about purchasing 20,000 units at $1.00 each.Current sales would not be affected by the special order and no additional fixed costs would be incurred on the special order.If the order is accepted,what is Missouri Company's change in profits?
A)$20,000 increase
B)$20,000 decrease
C)$10,000 increase
D)$10,000 decrease

Question

Quizplus · Accepted Answer

The contribution margin per unit is:
Selling price - Variable cost = $1.00 - $0.50 = $0.50

Since there are no additional fixed costs incurred, the increase in profit would be equal to the contribution margin of the special order units:

Contribution margin per unit * Number of special order units = $0.50 * 20,000 = $10,000 increase in profit

Therefore, the best choice is C.

Missouri Company Has a Current Production Capacity Level of 200,000