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 (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 (loss) will be generated by accepting the special order?
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 (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

A) £30,000 loss 
B) £4,000 loss 
C) £24,000 loss 
D) £4,000 profit

Quizplus · Accepted Answer

Regular unit cost = £40 + £2 = £42
Overtime unit cost = £42 + £8 = £50

Revenue from special order = £48 x 2000 = £96,000

Cost of producing 1000 units during overtime = £50 x 1000 = £50,000

Total cost of producing 2000 units = (1000 x £42) + (1000 x £50) = £92,000

Additional profit from accepting the special order = Revenue from special order - Total cost of producing 2000 units = £96,000 - £92,000 = £4,000 profit.

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