Black Horse Corporation manufactures a product with the following full unit costs at a volume of 2,000 units:
A company recently approached Black Horse's management with an offer to purchase 225 units for $275 each. Black Horse currently sells the product to dealers for $400 each. Black Horse's capacity is sufficient to produce the extra 225 units. No selling expenses would be incurred on the special order.
If Black Horse's management accepts the offer, profits will:

Question

Black Horse Corporation manufactures a product with the following full unit costs at a volume of 2,000 units:
 A company recently approached Black Horse's management with an offer to purchase 225 units for $275 each. Black Horse currently sells the product to dealers for $400 each. Black Horse's capacity is sufficient to produce the extra 225 units. No selling expenses would be incurred on the special order.
If Black Horse's management accepts the offer, profits will:

Quizplus · Accepted Answer

The relevant costs per unit to make the additional units are direct materials, $100, direct labor, $40, manufacturing overhead, $22.5, and administrative costs, $4, for a total relevant cost of $166.5, and a profit per unit of $108.5. The total increase in profit would be $108.5 x 225 or $24,412.50.

Black Horse Corporation Manufactures a Product with the Following Full