Question

Question 1. (special order) You sell high-quality fake IDs to college students at a regular price of $70. Your financial results for 20X9 are summarized in the following contribution margin statement: 20X9 Sales volume (#units) 90 Revenue Variable costs Contribution margin $4,950 Fixed costs Profit Special order: You have been approached by a client who wants to buy 40 units at a discounted price of $20 per unit. You have enough spare capacity to fulfill this special order without cutting back on your regular business (90 units at $70) $6,300 $1,350 $1,300 $3,650 Required: 1. Compute total profit with the special order (total for the regular business plus the special order). To do that, compute total revenue, costs, etc with special order: Total revenue-$ Total VC-$ Total CM-$ Total FC=$ Profit $ 2. Make a decision based on total profits with and without the special order. Should you take this special order? (enter 1 if yes, 2 if no)

Answer 1

Ques 1
1	Total revenue	$7100	(90 units *$70)+ (40 units*$20)
	Total VC	$1950	(90 units + 40units) *15
	Total CM	$5150	($7100-$1950)
	Total FC	$1300
	Profit	$3850	($5150-$1300)
	Working note
	variable cost per unit=	Total variable cost/unit sold
		$1350/90
		$15
2	Yes, special order should be accepted because it results increase in profits

Ques 2
a	Particulars	Basic	Premium	Supreme
	Selling price	$1800	$3000	$6000
	Variable cost	$600	$900	$1800
	Contribution margin per unit	$1200	$2100	$4200
	Machine hours	1	1.5	4
	Contribution margin per hour	$1200	$1400	$1050
	Rank	III	I	II
	Basic	$1200 per hour
	Premium	$1400 per hour
	Supreme	$050 per hour
b	Calculation of units to be produced for each product
	Product	Hours	Units	Hours * units
	Premium	1.5	600	900
	Basic	1	0	0
	Premium	4	0	0
	Basic	0	units
	Premium	600	units
	Supreme	0	units