Question

A foreign company whose sales will not affect Lattimer's market offers to buy 4,300 units at $6.80 per unit. In addition to existing costs, selling these units would add a $0.18 selling cost for export fees. Lattimer’s annual production capacity is 25,000 units. If Lattimer accepts this additional business, the special order will yield a:

Answer 1

$2,021 profit

Step-by-step explanation:

The computation is shown below:

The Incremental Revenue from special order is

= 4,300 units × $6.80

= $29,240

The existed variable cost per unit is

= $92,250 ÷ 15,000 units

= $6.15

Now the new incremental cost is

= $6.15 + $0.18

= $6.33

And, the total incremental cost is

= 4,300 units × $6.33

= $27,219

So, the yield would be

= $29,240 - $27,219

= $2,021 profit