Boone Products had the following unit costs: Direct materials £24; Direct labour

Question

Boone Products had the following unit costs: Direct materials £24; Direct labour £10; Variable factory overhead £8; Fixed factory overhead (allocated) £18. A one-time customer has offered to buy 2,000 units at a special price of £48 per unit. Because of capacity constraints, 1,500 units will need to be produced during overtime. Overtime premium is £7 per unit. The additional profit (loss) that will be generated by accepting the special order is

Select one:

a. cannot be determined.

b. £4,000 loss

c. £1,500 loss

d. £5,000 profit

e. £1,500 profit

If contribution per unit is £36 and total fixed costs is £9,000. In order to obtain a before-tax profit of £14,000 the company needs to sell-

Select one:

a. 456 units

b. 639 units

c. 333 units

d. 350 units

e. 875 units

Explanation / Answer

500 1500 contribution units units Selling price per unit 48 48 lessVariable costs direct materiald -24 -24 direct laboe -10 -10 variable manufacturing cost -8 -8 overtime premium -7 contribution margin 6 -1 total contribution = 500*6 + 1500*-1 3000-1500 1500 profit option e is the answer BEP(units) = (fixed cost +target prodit)/contribution                    = (9000+14000)/36 638.8889 option b   639 units

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