Black Tool Company has a production capacity of 1500 units per month,but current production is only 1250 units.The manufacturing costs are $70 per unit and marketing costs are $10 per unit.Doug Hall offers to purchase 250 units at $80 each for the next five months.Should Black accept the one-time-only special order if only absorption-costing data are available?
A)No,since only the employees will benefit.
B)No,the company will only break even.
C)Yes,good customer relations are essential.
D)Yes,since operating profits will most likely increase.

Question

Quizplus · Accepted Answer

Using absorption costing, the total cost per unit is $80 ($70 manufacturing cost + $10 marketing cost). Therefore, the special order price of $80 per unit will cover the total cost per unit. Since the company is not at full capacity, accepting the order would increase operating profits.

Black Tool Company Has a Production Capacity of 1500 Units