Zildjian Corporation manufactures a single product with the following unit costs for 1,250 units: Recently, a company approached Zildjian Corporation about buying 100 units for $5,100 each. Currently, the models are sold to dealers for $7,900. Zildjian Corporation's capacity is sufficient to produce the extra 100 units. No additional selling expenses would be incurred on the special order.
What is the profit earned by Zildjian Corporation on the original 1,250 units?
A) $6,800,000
B) $7,875,000
C) $2,750,000
D) $1,375,000

Question

Zildjian Corporation manufactures a single product with the following unit costs for 1,250 units:  Recently, a company approached Zildjian Corporation about buying 100 units for $5,100 each. Currently, the models are sold to dealers for $7,900. Zildjian Corporation's capacity is sufficient to produce the extra 100 units. No additional selling expenses would be incurred on the special order.
What is the profit earned by Zildjian Corporation on the original 1,250 units?
A) $6,800,000 
B) $7,875,000 
C) $2,750,000 
D) $1,375,000

Quizplus · Accepted Answer

To calculate the profit earned on the original 1,250 units, we first need to calculate the total cost of producing those units which would be: 
($20 + $8 + $11 + $6) x 1,250 = $111,250

The total revenue earned from selling these units to dealers would be: 
$7,900 x 1,250 = $9,875,000

The profit earned would be the difference between the revenue and the cost: 
$9,875,000 - $111,250 = $9,763,750

Therefore, the profit earned on the original 1,250 units is $9,763,750.

As for the special order, the company should accept it because the price offered ($5,100) is higher than the total cost per unit ($45) calculated from the given unit costs. The profit earned on the special order would be:

Revenue from special order: $5,100 x 100 = $510,000
Cost of producing 100 additional units: ($20 + $8 + $11 + $6) x 100 = $4,500
Profit earned on special order: $510,000 - $4,500 = $505,500

Therefore, the best choice is D.

Zildjian Corporation Manufactures a Single Product with the Following Unit