Fox Ltd manufactures and sells pens for $5 each.Wolf Company has offered Fox Ltd $4 per pen for a one-time order of 3500 pens.The total manufacturing cost per pen,using traditional costing,is $1 per unit,and consists of variable costs of $0.80 per pen and fixed overhead costs of $0.20 per pen.Assume that Fox Ltd has excess capacity and that the special order would not adversely affect regular sales.What is the change in operating profit that would result from accepting the special sales order?

Question

Quizplus · Accepted Answer

The contribution margin per pen for the special order is $4 - $0.80 = $3.20. For 3500 pens, the increase in operating profit is 3500 * $3.20 = $11,200. Fixed costs are not relevant as they do not change with the order.

Fox Ltd Manufactures and Sells Pens for $5 Each