The Minton Company has gathered the following information for a unit of its most

Question

The Minton Company has gathered the following information for a unit of its most popular product:

The above cost information is based on 4,200 units. A foreign distributor has offered to buy 1,200 units at a price of $18 per unit. This special order would not disturb regular sales. Variable shipping and other selling expenses would be an additional $1 per unit for the special order. If the special order is accepted, Minton's operating profits will increase by:

a. $1,200.

b. $1,920.

c. $2,400.

d. $4,800.

Direct materials $ 8 Direct labor 3 Overhead (40% variable) 5 Cost to manufacture 16 Desired markup (50%) 8 Target selling price $ 24

Explanation / Answer

Calculate profit on special order :

so answer is d) $4800

Sales (1200*18) 21600 Less: Cost Direct material (1200*8) (9600) Direct labour (1200*3) (3600) variable Overhead (1200*5*40%) (2400) Variable shipping and other selling exp (1200*1) (1200) Net profit from special order 4800

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