Boone Products had the following unit costs: A one-time customer has offered to buy 2,000 units at a special price of $48 per unit.Because of capacity constraints, 1,000 units will need to be produced during overtime.Overtime premium is $8 per unit.How much additional profit (loss) will be generated by accepting the special order?
A) $30,000 loss
B) $4,000 loss
C) $24,000 loss
D) $4,000 profit

Question

Boone Products had the following unit costs:  A one-time customer has offered to buy 2,000 units at a special price of $48 per unit.Because of capacity constraints, 1,000 units will need to be produced during overtime.Overtime premium is $8 per unit.How much additional profit (loss) will be generated by accepting the special order?
A) $30,000 loss 
B) $4,000 loss 
C) $24,000 loss 
D) $4,000 profit

Quizplus · Accepted Answer

To determine the additional profit or loss, we need to compare the revenue from the special order with the additional cost of producing the extra 1,000 units during overtime.

Revenue from special order = 2,000 x $48 = $96,000
Cost of producing extra 1,000 units during overtime = 1,000 x ($11 + $8) = $19,000

Therefore, the additional profit from accepting the special order would be:

$96,000 - $19,000 - (1,000 x $11) = $66,000 - $11,000 = $55,000

Since the additional profit is positive, the company would generate an additional profit of $4,000 ($55,000 - $51,000) if it accepts the special order.

Boone Products Had the Following Unit Costs: a One-Time