Reality Planet Ltd. sells product a model star at a price of $48 a unit. The per-unit cost data are: direct materials $15, direct labour $10, and overhead $12 (50% fixed and 50% variable). Reality Planet has sufficient capacity to accept a special order for 40,000 units just received. Selling costs associated with this order would be $3 per unit. At a selling price of $36 per unit, the operating profit will:
A) Increase by $144,000
B) Increase by $80,000
C) Increase by $120,000
D) Increase by $200,000

Question

Quizplus · Accepted Answer

The per-unit cost for the special order is calculated as follows: Direct materials ($15) + Direct labor ($10) + Variable overhead (50% of $12 = $6) + Selling costs ($3) = $34. The selling price is $36, so the profit per unit is $2 ($36 - $34). For 40,000 units, the total profit is $80,000 ($2 * 40,000).