The following information is available for Diva Footwear's segments: $\begin{array}{lrrr}&\text { Platform Shoes }&\text { Athletic Shoes }&\text { Boots }\\hline
\text { Sales } & \$ 120,000 & \$ 420,000 & \$ 360,000 \
\text { Variable costs } & 64,000 & 220,000 & 140,000\\text { Contribution margin } & 56,000 & 200,000 & 220,000 \
\text { Direct fixed costs } & 45,000 & 70,000 & 90,000 \
\text { Allocated fixed costs } & 20,000 & 70,000 & 60,000 \\text { Net income }&(\$9,000)&\$60,000&\$70,000
\end{array}$ Diva Footwear normally sells boots for $90 per pair.An exporter has approached Diva about buying 1,000 pairs of boots for a one-time export deal for $81 per pair.Diva can avoid $3.00 per pair of the normal variable cost on this sale, but Diva must pay a fixed cost of $4,000 to have the boots shipped.Diva has the capacity to produce this order, and no regular sales will be affected.What affect will occur on Diva's profits if the order is accepted?
A)Profits will increase by $42,000.
B)Profits will increase by $49,000.
C)Profits will increase by $45,000.
D)More information is needed to answer.

Question

Quizplus · Accepted Answer

The profit increase from the special order can be calculated as follows: The sale price per pair is $81, and the variable cost is reduced by $3.00 from the normal cost, which is not provided directly but can be inferred from the information given. The total variable cost savings is $3.00 * 1,000 pairs = $3,000. The total revenue from the sale is $81 * 1,000 = $81,000. The fixed cost for shipping is $4,000. Without the specific per-unit variable cost, we assume the normal variable cost structure applies, adjusted by the $3 savings per unit. The contribution margin from the sale (revenue minus variable costs) minus the fixed shipping cost gives the profit increase. Since the exact variable cost per unit isn't directly provided, we calculate the incremental profit as: Incremental revenue ($81,000) minus the adjusted variable costs and the additional fixed costs ($4,000) equals the profit increase. Given the choices and the information provided, more detailed calculations are needed to derive the exact figure, but the correct approach involves calculating the incremental profit from accepting the order, considering the reduced variable cost and the additional fixed cost.

The Following Information Is Available for Diva Footwear's Segments Diva Footwear Normally Sells Boots for $90 Per Pair