Zephram Corporation has a plant capacity of 200,000 units per month. Unt costs at capacity are:...

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Zephram Corporation has a plant capacity of 200,000 units per month. Unt costs at capacity are: $5.00 2.00 Direct materials D

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Answer 1

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Calculation of change in operating profits if one time special order is accepted.

	Current Situation		Special Order
	Total $ (190,000 Units)	Per Unit	Total $ (2,000 Units)	Per Unit	Total (192,000 Units)
Sales	57,00,000.00	30.00	52,000.00	26.00	57,52,000.00
Variable Costs
Direct materials	9,50,000.00	5.00	10,000.00	5.00	9,60,000.00
Direct labour	9,50,000.00	5.00	10,000.00	5.00	9,60,000.00
Variable manufacturing overhead	3,80,000.00	2.00	4,000.00	2.00	3,84,000.00
Variable marketing expenses	4,94,000.00	2.60	-	-	4,94,000.00
Total Variable Costs	27,74,000.00	14.60	24,000.00	12.00	27,98,000.00
Contribution = Sales - Total Variable Cost	29,26,000.00	15.40	28,000.00	14.00	29,54,000.00
Fixed Costs					-
Fixed Manufacturing Overheads	8,00,000.00	4.21	-	-	8,00,000.00
Fixed Marketing Overheads	18,00,000.00	9.47	-	-	18,00,000.00
Total Fixed Costs	26,00,000.00	13.68	-	-	26,00,000.00
Profit = Contribution - Total Fixed Cost	3,26,000.00	1.72	28,000.00	14.00	3,54,000.00

Note: Fixed overheads will not be applicable for special order. Also, Variable marketing expenses will also not be applicable for special order as there will no sales commission paid for this order.

The company is recommended to accept the special order, as its profits are increasing by $28,000 ($354,000 - $326,000).

Therefore, the correct option is $28,000 increase

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Answer 2

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