Zephram Corporation has a plant capacity of 200,000 units per month.Unit costs at capacity are: $$\begin{array} { l r }
\text { Direct materials } & \$ 4.00 \
\text { Direct labor } & 6.00 \
\text { Variable overhead } & 3.00 \
\text { Fixed overhead } & 1.00 \
\text { Marketing-fixed } & 7.00 \
\text { Marketing/distribution-variable } & 3.60
\end{array}$$ Current monthly sales are 190,000 units at $30.00 each.Q,Inc.,has contacted Zephram Corporation about purchasing 2,000 units at $24.00 each.Current sales would not be affected by the one-time-only special order.What is Zephram's change in operating profits if the one-time-only special order is accepted?
A) $14,800 increase
B) $17,200 increase
C) $22,000 increase
D) $33,200 increase

Question

Zephram Corporation has a plant capacity of 200,000 units per month.Unit costs at capacity are: $$\begin{array} { l r } 
\text { Direct materials } & \$ 4.00 \
\text { Direct labor } & 6.00 \
\text { Variable overhead } & 3.00 \
\text { Fixed overhead } & 1.00 \
\text { Marketing-fixed } & 7.00 \
\text { Marketing/distribution-variable } & 3.60
\end{array}$$ Current monthly sales are 190,000 units at $30.00 each.Q,Inc.,has contacted Zephram Corporation about purchasing 2,000 units at $24.00 each.Current sales would not be affected by the one-time-only special order.What is Zephram's change in operating profits if the one-time-only special order is accepted?
A) $14,800 increase
B) $17,200 increase
C) $22,000 increase
D) $33,200 increase

Quizplus · Accepted Answer

The correct answer is A.The change in operating profits is calculated as follows:Additional revenue from special order = 2,000 units * $24.00 per unit = $48,000Additional variable costs from special order = 2,000 units * ($4.00 + $6.00 + $3.00) = $26,000Additional fixed costs from special order = 0 (since fixed costs are not affected by the special order)Change in operating profits = $48,000 - $26,000 - $0 = $22,000

Zephram Corporation Has a Plant Capacity of 200,000 Units Per