Albatross 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 profit
C) $24,000 loss
D) $4,000 loss

Question

Albatross 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 profit 
C) $24,000 loss 
D) $4,000 loss

Quizplus · Accepted Answer

The special price of $48 per unit is above the unit cost of $40, so accepting the order will generate profit.

To calculate the total profit, we need to consider the additional cost of overtime.

The cost of producing 1,000 units in overtime will be:
1,000 units x ($40 + $8) = $48,000

The revenue from selling 2,000 units at $48 per unit will be:
2,000 units x $48 = $96,000

The total profit will be:
Total revenue - Total cost
= ($96,000) - ($48,000 + $22,000)
= $26,000

Therefore, accepting the special order will generate $4,000 profit ($26,000 - $22,000 regular profit).

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