ABC Company produces a single unit that it sells for $20 per unit. ABC has the capacity to produce 28,000 units each month. ABC is currently selling 19,000 units each month. The costs associated with each unit appears below: direct materials $5.00 direct labor 2.50 variable overhead 1.00 fixed overhead 1.50 variable selling costs 4.00 fixed selling costs 0.75 ABC Company has received a special order from a customer who wants to purchase 18,000 units at a reduced price of $16 per unit. ABC Company has determined that there would be no selling expenses in connection with this special order. However, there would be an increased direct material cost of $2 per unit for the special order units. Calculate the increase in company profits if ABC Company accepts the special order.
19000 Units Sold Without Special Order Sales 380000 Direct Material 19000*5 95000 Direct Labor 19000*2.50 47500 variable selling costs 19000*4 76000 Variable Overhead 19000*1 19000 Total variable Cost 237500 Contrbution 142500 fixed overhead fixed selling costs 1.50*28000 42000 fixed overhead .75*28000 21000 Total Fixed Cost 63000 Net Income 79500 28000 Units Sold WithSpecial Order Sales 10000*20+18000*16 488000 Direct Material 10000*5+18000*7 176000 Direct Labor 28000*2.50 70000 variable selling costs 10000*4 40000 Variable Overhead 28000*1 28000 Total variable Cost 314000 Contrbution 174000 fixed overhead fixed selling costs 1.50*28000 42000 fixed overhead .75*28000 21000 Total Fixed Cost 63000 Net Income 111000 crease in company profits if ABC Company accepts the special order. 111000-79500 =$31500
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