Answer:
Cranberry will have a financial advantage of $28,000 if it accepts the order
Explanation:
Note that "Cranberry has sufficient capacity to fill the order without harming normal production and sales" this means that the fixed costs will not change as production and sales remains in relevant range.
To determine the effect that the order will have on the company's short-term profit we consider Incremental Costs and Revenues that result from the special order.
Incremental Costs and Revenues - special order for 100 units
Sales ( 100 units × $2,100 per unit) $210,000
Less Cost of Sale : ($182,000)
Direct materials ( 100 units × $ 840 per unit) $84,000
Direct labor ( 100 units × $ 420 per unit) $42,000
Variable manufacturing overhead ( 100 units × $ 560 per unit) $56,000
Gross Profit $28,000
Therefore Cranberry will have a financial advantage of $28,000 if it accepts the order
Answer: Cranberry will record a $28,000 profit increase.
Explanation:
GIVEN the following details ;
Direct materials per unit = $840
Direct labor per unit = $420
Variable manufacturing overhead = $560
Fixed manufacturing overhead = $700
Units of special order = 100
Price per unit of special order = $2,100
What effect will the order have on the company's short-term profit?
NOTE : CRANBERRY IS ASSUMED TO HAVE SUFFICIENT PRODUCTION CAPACITY SUCH THAT ACCEPTING THE SPECIAL ORDER OFFER WOULD NOT DISRUPT NORMAL PRODUCTION AND SALES.
Cost incurred on production per unit:
$(840 + 420 + 560) = $1820
Total production cost of special order:
Number of units × cost per unit
100 × $1820 = $182,000
Sales Revenue on special order:
Number of units × selling price
100 × $2,100 = $210,000
Short term profit :
(Sales Revenue on special order - production cost of special order)
$(210,000 - 182,000) = $28,000
Therefore cranberry will record a $28,000 profit increase.
