P&T Furniture has a capacity to produce 40,000 oak shelves per year and is currently selling 36,000 shelves for $32 each.Bates Hotel has approached P&T about buying 1,200 shelves for a new hotel it is building and is willing to pay $26 for each shelf.The shelves can be packaged in bulk, saving P&T $1.50 per shelf compared to the normal packaging cost.Normally, the shelves have a unit variable cost of $27.The annual fixed costs of $450,000 will be unaffected by the special order and the order will not affect any of its other operations.What would be the impact on profit if P&T accepts this special order?

Question

Quizplus · Accepted Answer

The special order increases profit by $600. This is calculated by taking the special price of $26, subtracting the unit variable cost of $27 and adding back the savings in packaging of $1.50, resulting in a net profit of $0.50 per shelf. Multiplying $0.50 by the 1,200 shelves results in a $600 increase in profit.

P&T Furniture Has a Capacity to Produce 40,000 Oak Shelves