Question

The Parton Company has gathered the following information for a unit of its most popular product: Direct materials $ 20 Direct labor 15 Overhead (60% variable) 20 Cost to manufacture $ 55 The above cost information is based on 10,000 units. Parton currently sells 8,500 units for $62 per unit. A distributor has offered to buy 1,000 units at a price of $50 per unit. This special order would not disturb regular sales. Required: a. Calculate Parton's change in operating profits if the special order is accepted. b. How many units of regular sales could be lost before this contract is not profitable?

Answer 1

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

Direct materials $ 20

Direct labor 15

Overhead (60% variable) 20

Cost to manufacture $ 55

The above cost information is based on 10,000 units.

Parton currently sells 8,500 units for $62 per unit.

A distributor has offered to buy 1,000 units for $50 per unit.

We will have into account only the variable costs:

Unitary variable cost= 20 + 15 + (20*0.60)= 47

A) Increase in income= (50-47)*1000= $3,000

B) Regular units= 3000/(62 - 55)= 429 units