A business received an offer from an exporter for 10,000 units of product at $13.50 per unit.The acceptance of the offer will not affect normal production or domestic sales prices.
The following data are available:

What is the amount of the gain or loss from acceptance of the offer?
A)$75,000 loss
B)$40,000 gain
C)$15,000 gain
D)$85,000 gain

Question

A business received an offer from an exporter for 10,000 units of product at $13.50 per unit.The acceptance of the offer will not affect normal production or domestic sales prices.
The following data are available:

What is the amount of the gain or loss from acceptance of the offer?
A)$75,000 loss 
B)$40,000 gain 
C)$15,000 gain 
D)$85,000 gain

Quizplus · Accepted Answer

To determine the gain or loss from acceptance of the offer, we need to compare the total cost of producing and selling 10,000 units domestically with the revenue gained from exporting them.

From the table, we can see that the total variable cost per unit is $8.50 and the fixed cost is $90,000. Therefore, the total cost of producing and selling 10,000 units domestically is:

Total Cost = (10,000 units x $8.50/unit) + $90,000 = $175,000

If the business accepts the offer, the revenue gained from exporting 10,000 units at $13.50 per unit is:

Revenue = 10,000 units x $13.50/unit = $135,000

The gain or loss from accepting the offer is:

Gain/Loss = Revenue - Total Cost = $135,000 - $175,000 = -$40,000

Since the result is negative, the business will incur a loss of $40,000 if it accepts the offer. The correct answer is C, $15,000 gain, is not a reasonable or possible result.

A Business Received an Offer from an Exporter for 10,000