Rose Manufacturing Company had the following unit costs: $\begin{array}{llr}
\text { Direct materials} &\$24\
\text { Direct labour } &8\
\text { Variable manufacturing overhead } &10\
\text { Fixed manufacturing overhead } &18\
\end{array}$
A one-time customer has offered to buy 2,000 units at a special price of $48 per unit.Assuming that sufficient unused production capacity exists to produce the order and no regular customers will be affected by the order,how much additional profit or loss will be generated by accepting the special order?

Question

Rose Manufacturing Company had the following unit costs: $\begin{array}{llr}
  \text {  Direct materials} &\$24\
 \text { Direct labour } &8\
 \text { Variable manufacturing overhead } &10\
 \text { Fixed manufacturing overhead } &18\
\end{array}$
 A one-time customer has offered to buy 2,000 units at a special price of $48 per unit.Assuming that sufficient unused production capacity exists to produce the order and no regular customers will be affected by the order,how much additional profit or loss will be generated by accepting the special order?

Quizplus · Accepted Answer

To calculate the additional profit or loss, we need to compare the incremental revenue from the special order with the incremental cost of producing those units.

Incremental revenue = 2,000 units x $48 = $96,000

Incremental cost = 2,000 units x $35 = $70,000

Therefore, incremental profit = Incremental revenue - Incremental cost = $96,000 - $70,000 = $26,000

So, accepting the special order would generate an additional profit of $26,000 for Rose Manufacturing Company. However, the question only asks for the "additional profit or loss," so we need to make sure to consider the difference between this incremental profit and the profit that would have been earned otherwise.

Since the company has unused capacity and the order will not disrupt regular production, we can assume that there are no opportunity costs associated with accepting the order. Therefore, the company would have no reason not to accept the order and would earn an additional profit of $26,000.

Therefore, the correct answer is A) $12,000 profit.

Rose Manufacturing Company Had the Following Unit Costs A One-Time Customer Has Offered to Buy 2,000 Units at \text