Question

ABC Company has the capacity to produce 15,000 lamps each month. Current regular
production and sales are 10,000 lamps at a selling price of $15 each. The costs
associated with producing each lamp appear below:

direct materials         $5.00                          
direct labor              3.00                          
variable overhead         0.75
fixed overhead            1.50
variable selling costs    0.25
fixed selling costs       1.00

ABC Company has received a special order who wants to purchase 6,000 lamps at
a reduced price of $10 per lamp. ABC Company has determined that there would
be no selling expenses in connection with this special order. 

Calculate the amount of the increase in company profits if ABC Company accepts
the special order.

Answer 1

Companies Present Total Profit
sales Revenue	$         1,50,000
(10000 lamps*$15)
Less:
Variable Manufacturing Cost	$             87,500
[($5+3+0.75)*10000 lamps]
Fixed Manufacturing Cost	$             15,000
(10000 lamps*$1.50)
Variable Selling Cost	$               2,500
(10000 lamps*$0.25)
Fixed Selling Cost	$             10,000
(10000 lamps*1)
Net Profit	$             35,000
Companies Total Profit if accept special order
sales Revenue	$         1,95,000
[(9000 lamps*$15)+(6000*$10)
Less:
Variable Manufacturing Cost	$         1,31,250
[($5+3+0.75)*15000 lamps]
Fixed Manufacturing Cost	$             15,000
Variable Selling Cost	$               2,250
(9000 lamps*$0.25)
Fixed Selling Cost	$             10,000
Net Profit	$             36,500
Profit would increase by = $36500-35000
=$1500
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