Boone Products had the following unit costs: $\begin{array}{lr}
\text { Direct materials } & \$ 24 \
\text { Direct labour } & 10 \
\text { Variable factory overhead } & 8 \
\text { Fixed factory overhead (allocated) } & 18
\end{array}$ 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.Suppose the special order is accepted.How much additional profit (loss)will be generated?
A) a $30,000 loss
B) a $24,000 loss
C) a $4,000 loss
D) a $4,000 profit

Question

Quizplus · Accepted Answer

The additional profit is calculated as follows:Additional revenue = 2,000 units x $48 per unit = $96,000Additional variable costs = 1,000 units x $8 per unit (overtime premium) = $8,000Additional fixed costs = 0 (since fixed costs are allocated and do not change with the level of production)Additional profit = Additional revenue - Additional variable costs - Additional fixed costs = $96,000 - $8,000 - $0 = $88,000

Boone Products Had the Following Unit Costs A One-Time Customer Has Offered to Buy 2,000 Units at materials