How does the existence of substitutes affect the price elasticity of demand?A) The existence of substitutes leads to higher pric
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Answer:
Increase operating profit by $772,200
Explanation:
As for the provided information,
Details for special order are as follows:
It will require no additional operating expense whether fixed or variable in nature.
Further there is an idle capacity lying, to meet the order which will not require extra fixed manufacturing cost.
Total fixed cost in cost of goods sold = $2,268,400
Therefore total variable cost in cost of goods sold = $6,848,000 - $2,268,400 = $4,579,600
Average variable cost per unit = $4,579,600/428,000 = $10.70
Therefore, if the special order is accepted, which will cost only $10.70 per unit and be sold at $20.60 per unit.
It will add to operating profits as follows:
= 78,000 ($20.60 - $10.70) = $772,200