Test Three G Saved Help Save & Exit Submit Burns Industries currently manufactur

Question

Test Three G Saved Help Save & Exit Submit Burns Industries currently manufactures and sells 20,000 power saws per month, although it has the capacity to produce 35,000 units per month. At the 20,000-unit-per-month level of production, the per-unit cost is $65, consisting of $40 in variable costs and $25 in fixed costs. Burns sells its saws to retail stores for $80 each. Allen Distributors has offered to purchase 5,000 saws per month at a reduced price. Burns can manufacture these additional units with no change in its present level of fixed manufacturing costs 2.85 points Assume that Allen Distributors offers to purchase the additional 5,000 saws at a price of $47 per unit. If Burns accepts this price, Burns' monthly gross profit on sales of power saws will: Multiple Choice Increase by $35,000. Increase by $185,000 Decrease by $40,000 Decrease bv $240.000

Explanation / Answer

Answer

A. Increase by $ 35,000

Explanation:

Special order contribution Margin

= Selling price - Variable cost

=$ 47 - $ 40

=$7 per unit

Total contribution Margin = $7×5000 saws = $ 35,000

Note: For special orders, fixed cost is not considered because that has to be incurred irrespective of output or special order .

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.