Reggie Ltd. manufactures a single product with the following unit costs for 1,000 units: Recently, a company approached Reggie Ltd. about buying 100 units for £5,100 each. Currently, the models are sold to dealers for £7,800. Reggie Ltd.'s capacity is sufficient to produce the extra 100 units. No additional selling expenses would be incurred on the special order.
What is the profit earned by Reggie Ltd. on the original 1,000 units?

A) £6,900,000
B) £8,400,000
C) £900,000
D) £2,640,000

Question

Reggie Ltd. manufactures a single product with the following unit costs for 1,000 units: Recently, a company approached Reggie Ltd. about buying 100 units for £5,100 each. Currently, the models are sold to dealers for £7,800. Reggie Ltd.'s capacity is sufficient to produce the extra 100 units. No additional selling expenses would be incurred on the special order.
What is the profit earned by Reggie Ltd. on the original 1,000 units?

A) £6,900,000 
B) £8,400,000 
C) £900,000 
D) £2,640,000

Quizplus · Accepted Answer

To calculate the profit earned by Reggie Ltd on the original 1,000 units, we need to subtract the total cost of producing 1,000 units from the total revenue earned from selling 1,000 units.

Total Revenue = 1,000 units x £7,800 = £7,800,000

Total Cost = (600 x £3,000) + (400 x £3,800) = £3,600,000 + £1,520,000 = £5,120,000

Profit = Total Revenue – Total Cost = £7,800,000 – £5,120,000 = £2,680,000

Therefore, the profit earned by Reggie Ltd on the original 1,000 units is £2,680,000.