Excellent Manufacturers Inc. has a current production level of 20,000 units per month. Unit costs at this level are:

Current monthly sales are 18,000 units. Jax Company has contacted Excellent about purchasing 1,550 units at $2.00 each. Current sales would NOT be affected by the one-time-only special order, and variable marketing/distribution costs would NOT be incurred on the special order. What is Ratzlaff Company's change in operating profits if the special order is accepted?
A) $4,929.00 increase in operating profits
B) $4,929.00 decrease in operating profits
C) $1,829.00 increase in operating profits
D) $1,829.00 decrease in operating profits

Question

Excellent Manufacturers Inc. has a current production level of 20,000 units per month. Unit costs at this level are:

Current monthly sales are 18,000 units. Jax Company has contacted Excellent about purchasing 1,550 units at $2.00 each. Current sales would NOT be affected by the one-time-only special order, and variable marketing/distribution costs would NOT be incurred on the special order. What is Ratzlaff Company's change in operating profits if the special order is accepted?
A) $4,929.00 increase in operating profits 
B) $4,929.00 decrease in operating profits 
C) $1,829.00 increase in operating profits 
D) $1,829.00 decrease in operating profits

Quizplus · Accepted Answer

Manufacturing cost per unit = $0.26 + $0.40 + $0.16 = $0.82 Increase in operating profits = 1,550 × ($2.00 - $0.82)
= $1,829.00 increase