ProLight plans to sell 1,600 white lights that enhance indoor plant growth next year with total
Budgeted sales of $48,000 and estimated profit of $8,000.Variable costs are projected to be $17.50 per unit.Customer A offers to pay $10,000 to buy 400 lights from ProLight.Total fixed costs are $12,000 per year.This offer does not affect ProLight's other planned operations.How much is incremental profit associated with the offer from Customer A?

Question

Quizplus · Accepted Answer

The total variable cost for 1,600 lights is $17.50 x 1,600 = $28,000. 
The total contribution margin for 1,600 lights is $48,000 - $28,000 = $20,000. 
The estimated profit is $8,000. Thus, the total fixed costs are $20,000 - $8,000 = $12,000. 
If ProLight accepts Customer A's offer, the incremental profit would be the profit gained from the offer minus the profit from the 400 lights that would have been sold anyway. 
The profit from the 400 lights at variable cost of $17.50 is $2,500. 
Thus, the incremental profit is $10,000 - $2,500 - $12,000 = $5,500. 
Therefore, the best choice is A, incremental profit associated with the offer from Customer A is $3,000.

ProLight Plans to Sell 1,600 White Lights That Enhance Indoor