Coroid Manufacturers Inc. is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. The company has excess capacity. The following per unit data apply for sales to regular customers:Variable costs:Direct materials$150Direct labor90Manufacturing support115Marketing costs85Fixed costs:Manufacturing support165Marketing costs55Total costs660Markup (40%) 264Targeted selling price$924What is the change in operating profits if the one-time-only special order for 1,020 units is accepted for $540 a unit by Coroid? A.$102,000 increase in operating profitsB.$101,340 increase in operating profitsC.$102,000 decrease in operating profitsD.$101,340 decrease in operating profits

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Business

Davin Cowan

28 May, 06:09

Coroid Manufacturers Inc. is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. The company has excess capacity. The following per unit data apply for sales to regular customers:Variable costs:Direct materials$150Direct labor90Manufacturing support115Marketing costs85Fixed costs:Manufacturing support165Marketing costs55Total costs660Markup (40%) 264Targeted selling price$924What is the change in operating profits if the one-time-only special order for 1,020 units is accepted for $540 a unit by Coroid? A.$102,000 increase in operating profitsB.$101,340 increase in operating profitsC.$102,000 decrease in operating profitsD.$101,340 decrease in operating profits

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Humphrey · Answer 1

Coroid Manufacturers Inc. will increase Operating profit by $102,000 as a result of this unplanned one-time order.

Explanation:

Variable costs:

Direct materials$150

Direct labor $90

Manufacturing support $115

Marketing costs $85

Total Variable costs = $440

Fixed costs:

Manufacturing support $165

Marketing costs $55

Total Fixed costs = $220

Total costs $660

Markup (40%) $264

Targeted selling price $924

If Caroid Accepts $540 a unit for a total of 1,020 one-time order.

The attributable costs in a one-time order condition is the Cariable Cost of production.

For this to be 3 factors must be considered:

1. The Plant must be producing exactly similar products as it is producing for its mass Market

2. The Plant must have enough capacity to meet the order with no additional cost to plant investments

3. The Plant Fixed Costs is already deemed incurred irrespective of the one-time order occuring or not

Caroid Manufacturers Inc satisfies all 3 conditions.

Thus, its Expected Operating Profit Per unit from normal operations = $924 - $660 = $264

However, its Eventual Operating Profit based on the above = $540 - $440 = $100

Applied to 1,020 units = $102,000

This is an increase of $102,000 to Caroid's Operating profit because it was not planned for in the first instance.