Northern Glass Manufacturing has a current production level of 200,000 glass jars per month. Unit costs at this level are: Current monthly sales are 180,000 units. Canadian Hardware Ltd. has contacted Northern Glass Manufacturing about purchasing 15,000 units at $1.00 each. Current sales would not be affected by the special order, and variable marketing/ distributing costs would not be incurred on the special order.
What is Comics Plus' change in profits if the order is accepted?
A) $4,800 increase
B) $4,800 decrease
C) $1,800 decrease
D) $300 decrease
E) $1,200 increase

Question

Northern Glass Manufacturing has a current production level of 200,000 glass jars per month. Unit costs at this level are:  Current monthly sales are 180,000 units. Canadian Hardware Ltd. has contacted Northern Glass Manufacturing about purchasing 15,000 units at $1.00 each. Current sales would not be affected by the special order, and variable marketing/ distributing costs would not be incurred on the special order.
What is Comics Plus' change in profits if the order is accepted?
A) $4,800 increase 
B) $4,800 decrease 
C) $1,800 decrease 
D) $300 decrease 
E) $1,200 increase

Quizplus · Accepted Answer

To calculate the change in profit, we need to calculate the contribution margin per unit on the special order. The selling price per unit is $1.00, and the unit cost is $0.45 (variable cost per unit of $0.25 and fixed cost per unit of $0.20, based on the given information). This gives a contribution margin per unit of $0.55 ($1.00 - $0.45).

The special order is for 15,000 units, so the total contribution margin would be $8,250 ($0.55 x 15,000). This is additional profit for Northern Glass Manufacturing.

Since there are no additional costs associated with the special order, the change in profit is simply the contribution margin. Therefore, the change in profit is $8,250. However, the question is asking for the change in profit specifically for Comics Plus. There is no information provided in the problem indicating how Comics Plus is related to Northern Glass Manufacturing or this transaction, so it is not possible to answer that part of the question.

Northern Glass Manufacturing Has a Current Production Level of 200,000