The following per unit information relates to a product produced by Creamer Comp
ID: 2577814 • Letter: T
Question
The following per unit information relates to a product produced by Creamer Company: Direct materials £30, Direct labour £15, Variable overhead £30, Fixed overhead £18. Fixed selling costs are £500,000 per year, and variable selling costs are £12 per unit sold. Although production capacity is 600,000 units per year, the company expects to produce only 400,000 units next year. The product normally sells for £120 each. A customer has offered to buy 60,000 units for £90 each. The profit/loss associated with the special order is Select one: a. £180,000 b. £200,000 c. £160,000 d. £210,000 e. £190,000
its been long since I posted. Kindly help.
Explanation / Answer
Answer is £180,000
Under Special Order:
Number of units = 60,000
Selling Price = £90 per unit
Total Variable Costs per unit = Direct materials per unit + Direct Labor per unit + Variable Overhead per unit + Variable Selling Cost per unit
Total Variable Costs per unit = £30 + £15 + £30 + £12
Total Variable Costs per unit = £87
Sales Revenue = 60,000 * £90
Sales Revenue = £5,400,000
Variable Costs = 60,000 * £87
Variable Costs = £5,220,000
Profit = Sales Revenue - Variable Costs
Profit = £5,400,000 - £5,220,000
Profit = £180,000
So, profit associated with the special order is £180,000
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