Werry Company is about to introduce a new product. It is expected that the following costs would be incurred when 25,000 units are produced and sold in a year: Werry Company uses the absorption costing approach to cost-plus pricing as described in the text.
-After introducing the product at a markup of 90%,the company finds that it has excess capacity.A foreign dealer has offered to purchase 4,000 units of the product at a special price of $32 per unit.This sale would not disturb regular business.If the special price is accepted on the 4,000 units,the effect on total profits for the year will be a:
A)56,000 increase
B)76,800 increase
C)16,000 increase
D)48,000 increase

Question

Werry Company is about to introduce a new product. It is expected that the following costs would be incurred when 25,000 units are produced and sold in a year:  Werry Company uses the absorption costing approach to cost-plus pricing as described in the text.
-After introducing the product at a markup of 90%,the company finds that it has excess capacity.A foreign dealer has offered to purchase 4,000 units of the product at a special price of $32 per unit.This sale would not disturb regular business.If the special price is accepted on the 4,000 units,the effect on total profits for the year will be a:
A)56,000 increase 
B)76,800 increase 
C)16,000 increase 
D)48,000 increase

Quizplus · Accepted Answer

Variable cost per unit = $14 per unit + $4 per unit = $18 per unit
Incremental profit = ($32 per unit - $18 per unit)F1F1F1S1F1F1F10 4,000 units = $14 per unit F1F1F1S1F1F1F10 4,000 units = $56,000

Werry Company Is About to Introduce a New Product