Sweet Treats Company has a capacity of 40,000 units per year and is currently se
ID: 2623087 • Letter: S
Question
Sweet Treats Company has a capacity of 40,000 units per year and is currently selling 35,000 for $400 each. Lucky Company has approached Sweet Treats about buying 2,000 units for only $300 each. The units would be packaged in bulk, saving Sweet Treats $20 per unit when compared to the normal packaging cost. Normally, Sweet Treats has a variable cost of $280 per unit. The annual fixed cost of $2,000,000 would be unaffected by the special order. What would be the impact on profits if Sweet Treats were to accept this special order?
A.
Profits would increase $40,000.
B.
Profits would increase $60,000.
C.
Profits would decrease $200,000.
D.
Profits would increase $80,000
A.
Profits would increase $40,000.
B.
Profits would increase $60,000.
C.
Profits would decrease $200,000.
D.
Profits would increase $80,000
Explanation / Answer
D.
Profits would increase $80,000
normal cost per unit = 280 - savings in packaging= 280-20=260
co has excess capacity to make special order. fixed cost wont change. so profit will increase by (300-260)*2000 = 80000
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