Accent Furniture has a capacity of 30,000 desk chairs per year and is currently selling all 30,000 for $240 each. Country Bank has approached Accent for buying 800 chairs for only $210 each. Accent has a normal variable cost of $165 per chair, including $50 per unit in direct labor per chair. Accent can produce the special order on an overtime shift. This would result in direct labor being paid overtime at 150% of the normal pay rate. The annual fixed costs will be unaffected by the special order and it will not affect any of its other operations. What will be the impact on profits of accepting the order?

Question

Quizplus · Accepted Answer

The variable cost of the special order is $165 + (50 * 1.5) = $222.50 per chair. The profit on the special order is $210 - $222.50 = -$12.50 per chair. The total profit on the special order is -$12.50 * 800 = -$10,000. The profit on the regular sales is $240 - $165 = $75 per chair. The profit on the regular sales is $75 * 30,000 = $2,250,000. The total profit with the special order is $2,250,000 - $10,000 = $2,240,000. The total profit without the special order is $2,250,000. The difference in profit is $2,240,000 - $2,250,000 = -$10,000. The profit will decrease by $10,000 if the special order is accepted.

Accent Furniture Has a Capacity of 30,000 Desk Chairs Per