Use the following information to answer questions
Boca Inc.'s current product selling price is $70, variable cost per unit is $35, total fixed costs are $1,430,000, and sales volume is 150,000 units.
-The company is considering accepting an order to sell an additional 5,000 units for $40 per unit. Variable selling expenses will rise by $1 per unit because of an additional sales commission that would have to be paid and an additional $17,000 would need to be spent for fixed costs related to the order. By how much would profits increase or decrease if Boca accepts this special order?

Question

Use the following information to answer questions 
Boca Inc.'s current product selling price is $70, variable cost per unit is $35, total fixed costs are $1,430,000, and sales volume is 150,000 units.
-The company is considering accepting an order to sell an additional 5,000 units for $40 per unit. Variable selling expenses will rise by $1 per unit because of an additional sales commission that would have to be paid and an additional $17,000 would need to be spent for fixed costs related to the order. By how much would profits increase or decrease if Boca accepts this special order?

Quizplus · Accepted Answer

The additional revenue from the special order is 5,000 units * $40/unit = $200,000. The additional variable costs are 5,000 units * $36/unit ($35 production cost + $1 sales commission) = $180,000. The additional fixed costs are $17,000. So, the net increase in profit is $200,000 - $180,000 - $17,000 = $3,000.

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