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.How much additional profit or loss will be generated by accepting the special order?
A)$30,000 loss
B)$4,000 loss
C)$24,000 loss
D)$4,000 profit

Question

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.How much additional profit or loss will be generated by accepting the special order?
A)$30,000 loss 
B)$4,000 loss 
C)$24,000 loss 
D)$4,000 profit

Quizplus · Accepted Answer

To calculate the profit or loss from accepting the special order, we need to compare the total revenue from the order to the total cost of producing and delivering the order.

Total revenue from the order:
2,000 units x $48 = $96,000

Total cost of producing and delivering the order:
Direct materials cost = 2,000 x $16 = $32,000
Direct labor cost = 2,000 x $8 = $16,000
Variable overhead cost = 2,000 x $10 = $20,000
Total variable cost = $68,000

Since 1,000 units need to be produced during overtime, we need to add the overtime premium cost:
1,000 x $8 = $8,000

Total cost of producing and delivering the order including overtime premium:
$68,000 + $8,000 = $76,000

Profit or loss from accepting the order:
$96,000 - $76,000 = $20,000 profit

Therefore, the additional profit generated by accepting the special order is $4,000.

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