Screen Saver Industries has spare production capacity due to the cancellation of a customer order. An overseas retail chain has offered the business an order for 300 units at a price of $25 each. The variable cost of the units is $20 each and the fixed costs are $3 per unit. What will be the impact on Screen Savers profit if the special order is accepted?

Question

Quizplus · Accepted Answer

The contribution margin per unit is $5 ($25 - $20). For 300 units, the total contribution margin is $1,500 (300 units x $5). Fixed costs are not relevant as they do not change with the order. Thus, accepting the order increases profit by $1,500.

Screen Saver Industries Has Spare Production Capacity Due to the Cancellation