The Parton Company has gathered the following information for a unit of its most popular product:
$$\begin{array} { l r }
\text { Direct materials } & \$ 20 \
\text { Direct labor } & 15 \
\text { Overhead (60\% variable) } & 20 \
\text { Cost to manufacture } & \$ \mathbf { 5 5 } \

\end{array}$$
The above cost information is based on 10,000 units. Parton currently sells 8,500 units for $62 per unit. A distributor has offered to buy 1,000 units at a price of $50 per unit. This special order would not disturb regular sales.
Required:
a. Calculate Parton's change in operating profits if the special order is accepted.
b. How many units of regular sales could be lost before this contract is not profitable?

Question

The Parton Company has gathered the following information for a unit of its most popular product:
 $$\begin{array} { l r } 
\text { Direct materials } & \$ 20 \
\text { Direct labor } & 15 \
\text { Overhead (60\% variable) } & 20 \
\text { Cost to manufacture } & \$ \mathbf { 5 5 } \

\end{array}$$ 
The above cost information is based on 10,000 units. Parton currently sells 8,500 units for $62 per unit. A distributor has offered to buy 1,000 units at a price of $50 per unit. This special order would not disturb regular sales.
Required:
a. Calculate Parton's change in operating profits if the special order is accepted.
b. How many units of regular sales could be lost before this contract is not profitable?

Quizplus · Accepted Answer

The Answer of The Parton Company has gathered the following information for a unit of its most popular product:
 $$\begin{array} { l r } 
\text { Direct materials } & \$ 20 \
\text { Direct labor } & 15 \
\text { Overhead (60\% variable) } & 20 \
\text { Cost to manufacture } & \$ \mathbf { 5 5 } \

\end{array}$$ 
The above cost information is based on 10,000 units. Parton currently sells 8,500 units for $62 per unit. A distributor has offered to buy 1,000 units at a price of $50 per unit. This special order would not disturb regular sales.
Required:
a. Calculate Parton's change in operating profits if the special order is accepted.
b. How many units of regular sales could be lost before this contract is not profitable?

The Parton Company Has Gathered the Following Information for a Unit