PowerDrive, Inc. produces a hard disk drive that sells for $175 per unit. The co

Question

PowerDrive, Inc. produces a hard disk drive that sells for $175 per unit. The cost of producing 25,000 drives in the prior year was: Direct material $625,000 Direct labor 375,000 Variable overhead 125,000 Fixed overhead 1,500,000 Total cost $2,625,000 At the start of the current year, the company received an order for 3,600 drives from a computer company in China. Management of PowerDrive has mixed feelings about the order. On the one hand they welcome the order because they currently have excess capacity. Also, this is the company PowerDrive, Inc. produces a hard disk drive that sells for $175 per unit. The cost of producing 25,000 drives in the prior year was: Direct material $625,000 Direct labor 375,000 Variable overhead 125,000 Fixed overhead 1,500,000 Total cost $2,625,000

Explanation / Answer

Profit when 25000 units are sold:

Profit when additional 3600 units are sold:

Profit with total sales of 25000+3600:

Sales (25000*175)          4,375,000 Direct material              625,000 Direct labor              375,000 Variable overhead              125,000 Fixed overhead          1,500,000 Total cost          2,625,000 Profit          1,750,000 Profit % 40%

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