Reggie Corporation manufactures a single product with the following unit costs for 1,000 units: Recently, a company approached Reggie Corporation about buying 100 units for $5,100 each.Currently, the models are sold to dealers for $7,800.Reggie Corporation'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 Corporation on the original 1,000 units?
A) $6,900,000
B) $8,400,000
C) $900,000
D) $2,640,000

Question

Reggie Corporation manufactures a single product with the following unit costs for 1,000 units:  Recently, a company approached Reggie Corporation about buying 100 units for $5,100 each.Currently, the models are sold to dealers for $7,800.Reggie Corporation'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 Corporation 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 profit earned by Reggie Corporation on the original 1,000 units, we need to subtract the total unit costs from the total revenue:

Total revenue = 1,000 units x $7,800 per unit = $7,800,000

Total unit costs = 1,000 units x $6,000 per unit = $6,000,000

Profit = Total revenue - Total unit costs = $7,800,000 - $6,000,000 = $1,800,000

Therefore, the profit earned by Reggie Corporation on the original 1,000 units is $1,800,000.

Since the special order would be sold for $5,100 each, which is lower than the current selling price of $7,800, it would actually decrease the profit per unit if Reggie Corporation accepts the offer. Therefore, the best choice would be to reject the special order and continue selling at the current price of $7,800 per unit. Thus, the answer is:

Answer: Reject the special order

Reggie Corporation Manufactures a Single Product with the Following Unit