Rose Manufacturing Company had the following unit costs: $\begin{array}{lr}
\text { Direct materials } & £ 24 \
\text { Direct labour } & 8 \
\text { Variable factory overhead } & 10 \
\text { Fixed factory overhead (allocated) } & 18
\end{array}$ A one-time customer has offered to buy 2,000 units at a special price of £48 per unit. Assuming that sufficient unused production capacity exists to produce the order and no regular customers will be affected by the order, how much additional profit (loss) will be generated by accepting the special order?

Question

Quizplus · Accepted Answer

The additional profit from the special order can be calculated by considering only the variable costs (direct materials, direct labor, and variable factory overhead) and the special price offered. Fixed costs are not considered as they are already incurred whether the order is accepted or not. The variable cost per unit is £24 (direct materials) + £8 (direct labor) + £10 (variable factory overhead) = £42. The special price offered is £48 per unit. Therefore, the additional profit per unit is £48 - £42 = £6. For 2,000 units, the additional profit is 2,000 units * £6 = £12,000.

Rose Manufacturing Company Had the Following Unit Costs A One-Time Customer Has Offered to Buy 2,000 Units at Direct