Question

Missouri Company has a current production capacity level of 200,000 units per month. At this level of production, variable costs are $0.60 per unit and fixed costs are $0.50 per unit. Current monthly sales are 173,000 units. Gates Company has contacted Missouri Company about purchasing 20,000 units at $1.00 each. Current sales would not be affected by the special order and no additional fixed costs would be incurred on the special order. If the order is accepted, what is Missouri Company's change in profits?a $8,000 decreaseb $10,000 increasec $8,000 increased $10,000 decrease

Answer 1

Answer:

If the order is accepted, Missouri Company's change in profits: c $8,000 increase

Explanation:

Gates Company want to purchased 20,000 units at $1.00 each. Current sales would not be affected by the special order and no additional fixed costs would be incurred on the special order.

Total sales of the special order = $1.00 x 20,000 = $20,000

Variable costs are $0.60 per unit.

Total Variable costs of the special order = $0.60 x 20,000 = $12,000

Profit from the special order = Total sales - Total Variable costs = $20,000 - $12,000 = $8,000