Question

Question 1: Special order Sales volume in units 120 Revenue $8,400 Variable costs $2,400 Contribution margin $6,000 Fixed costs $1,400 Profit $4,600 Special order: A client wants to buy 40 units at a discounted price of $40 per unit. This is a one-time deal (i.e., a short-term decision). You have enough spare capacity to fulfill this special order without cutting back on your regular sales. a) Use the gross approach to decide whether you should take the special order: status quo (no special order) total amounts after adding the special order Revenue $8,400 Variable costs $2,400 Contribution margin $6,000 Fixed costs $1,400 Profit $4,600 Should you take the special order

Answer 1

Answer:

Yes, accept the special order.

Explanation:

                                              Before Special Order        After Special Order

                                                         120 units                               160

Sales                                                 $8,400                              $10,000

Less Variable Costs                       ($2,400)                              ($3,200)

Contribution                                     $6,000                               $6,800

Less Fixed Costs                             ($1,400)                              ($1,400)

Net Income                                       $4,600                               $5,400

Conclusion

As a result of special order, we have an additional profit of $800. Therefore, accept the special order.