Jake Company is considering a special order for 5,000 units at a price of $60 per unit. Jake's product normally sells for $84 per unit and has variable manufacturing costs of $45 per unit and variable selling costs of $9 per unit. Fixed manufacturing costs are $150,000 and fixed selling and administrative costs are $300,000. Jake has capacity to produce 30,000 units and is currently producing 20,000 units. If the order is accepted, , Jake will incur legal fees of $7,500 in connection with the order, but there will be no variable selling costs on the special order. What amount of additional profit or loss will be incurred if the order is accepted?

Respuesta :

Answer:

the additional profit that will be incurred if the order is accepted is 67.500

Explanation:

In this case you have to calculate the contribution margin of the special order.

Contribution margin = ( Units* Price) - (units* Variable manufacturing costs) = (5000*60)-(5000*45)=75.000

Since there are not variable selling cost on this special order we just need to deduct the legal fees of $7.500

so the Net income is (Contribution Margin - Legal fees)= 75.000-7.500 =67.500