Walnut has received a special order for 2,800 units of its product at a special

Question

Walnut has received a special order for 2,800 units of its product at a special price of $245. The product normally sells for $290 and has the following manufacturing costs:

Walnut is currently operating at full capacity and cannot fill the order without harming normal production and sales. If Walnut accepts the order, what effect will the order have on the company’s short-term profit?

$126,000 decrease

$98,000 increase

$98,000 decrease

Zero

Per unit Direct materials $ 63 Direct labor 58 Variable manufacturing overhead 68 Fixed manufacturing overhead 91 Unit cost $ 280

Explanation / Answer

When company is currently operating at full capacity and cannot fill the order without harming nromal production and sale then if walnut accepts the order company's short term profit decrease by (290-245)*2800 = $126000

So answer is a) $126000 Decrease

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