Question

Black Cat Corporation manufactures a product with the following full unit costs at a volume of 4,000 units: Direct materials $200 Direct labor 80 Manufacturing overhead (30% variable) 150 Selling expenses (50% variable) 50 Administrative expenses (10% variable) 80 Total per unit $560 A company recently approached Black Cat’s management with an offer to purchase 450 units for $550 each. Black Cat currently sells the product to dealers for $800 each. Black Cat’s capacity is sufficient to produce the extra 450 units. No selling expenses would be incurred on the special order. If Black Cat’s management accepts the offer, profits will: Group of answer choices Decrease by $120,000 Increase by $66,800 Increase by $97,650 Decrease by $24,000

Answer 1

Answer:

Increase by $97,650

Explanation:

Increment Sale                                       $247,500

(450 * $550)

Less Increment cost

Direct materials                 $90,000

(450 * $200)

Direct labor                        $36,000

(450 * $80)

Manufacturing overhead   $20,250

(450 * $150 * 30%)  

Administrative expenses   $3,600        $149,850

(450 * $80 * 10%)

Profit will increase by                             $97,650