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

Question

Quizplus · Accepted Answer

The total variable cost per unit (direct materials + direct labor + variable factory overhead) is $24 + $10 + $8 = $42. For the 1,000 units produced during overtime, there's an additional $8 per unit for the overtime premium, making the cost $50 per unit. The special price is $48 per unit. For the first 1,000 units (without overtime premium), the profit per unit is $48 - $42 = $6. For the second 1,000 units (with overtime premium), the loss per unit is $50 - $48 = $2. Therefore, the total additional profit is ($6 * 1,000) - ($2 * 1,000) = $6,000 - $2,000 = $4,000.

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