Albatross Products had the following unit costs: A one-time customer has offered to buy 2,000 units at a special price of $48 per unit. Because of capacity
Constraints, 1,000 units will need to be produced during overtime. Overtime premium is $8 per unit. How much additional profit (loss) will be generated by accepting the special order?
A) $30,000 loss
B) $4,000 profit
C) $24,000 loss
D) $4,000 loss

Question

Albatross Products had the following unit costs:  A one-time customer has offered to buy 2,000 units at a special price of $48 per unit. Because of capacity
Constraints, 1,000 units will need to be produced during overtime. Overtime premium is $8 per unit. How much additional profit (loss) will be generated by accepting the special order?
A) $30,000 loss 
B) $4,000 profit 
C) $24,000 loss 
D) $4,000 loss

Quizplus · Accepted Answer

The regular unit cost is $40, but with the addition of overtime premium, the unit cost will increase to $48 per unit. The special price offered by the customer is also $48 per unit, so the additional revenue generated will be $48 - $40 = $8 per unit.

For the 2,000 units ordered, 1,000 units will need to be produced during overtime. The additional cost for producing these units will be 1,000 x $8 = $8,000.

The total revenue generated from the order is 2,000 x $48 = $96,000. The total cost for producing these units will be (1,000 x $48) + (1,000 x $40) + $8,000 = $96,000.

Therefore, the profit generated by accepting the special order will be $96,000 - $96,000 = $0. However, since this order will utilize the full capacity of the company, it may still be worth accepting in order to fill the production line and maintain customer relationships.

Thus, the best choice is B, with a profit of $4,000.

Albatross Products Had the Following Unit Costs: a One-Time