Marx Company has a current production capacity level of 200,000 units per month. At this level of production, variable costs are $0.50 per unit and fixed costs are $0.50 per unit. Current monthly sales are 183,000 units. Heaven Company has contacted Marx Company about purchasing 15,000 units at $1.00 each. Current sales would not be affected by the special order and no additional fixed costs would be incurred on the special order. Marx Company's change in profits if the order is accepted will be:

Question

Quizplus · Accepted Answer

The special order will generate additional revenue of $15,000 (15,000 units x $1.00). The variable cost for these units is $7,500 (15,000 units x $0.50). The increase in profit is the additional revenue minus the additional variable costs, which is $15,000 - $7,500 = $7,500.

Marx Company Has a Current Production Capacity Level of 200,000