The AZ Company manufactures kitchen utensils.The company is currently producing well below its full capacity.The BV Company has approached AZ with an offer to buy 20,000 utensils at $0.75 each.AZ sells its utensils wholesale for $0.85 each;the average cost per unit is $0.83,of which $0.12 is fixed costs.If AZ were to accept BV's offer,what would be the increase in AZ's operating profits?

Question

Quizplus · Accepted Answer

The variable cost per unit is $0.71 ($0.83 - $0.12). Selling at $0.75 each, the contribution margin per unit is $0.04 ($0.75 - $0.71). For 20,000 units, the increase in operating profits is $800 (20,000 x $0.04).

The AZ Company Manufactures Kitchen Utensils