Answer:
Increase in profit $ 1900
Explanation:
<em>To determine the additional profit from the special order, we would consider only the costs and revenue relevant to the special order decision:</em>
Unit relevant cost = Total variable cost/Units produced
Total variable costs = 86,000 + 12,000 =$98000
Unit relevant cost = 98,000/8,000 = $12.25
<em>Note that fixed costs are irrelevant, whether or not the special order is accepted the fixed manufacturing and administrative expenses would be incurred</em>. <em>Hence, they are excluded from the computation.</em>
$
Revenue from the special order ( $14× 2,000) = 28,000
Relevant costs of special order ( $12.25
× 2,000) (24,500)
Cost of special tools <u> (1,600)</u>
Increase in profit <u> 1900
</u>
