Question

47. P&T Furniture has a capacity to produce 40,000 oak shelves per year and is currently selling 36,000 shelves for $32 each. Bates Hotel has approached P&T about buying 1,200 shelves for a new hotel it is building and is willing to pay $26 for each shelf. The shelves can be packaged in bulk, saving P&T $1.50 per shelf compared to the normal packaging cost. Normally, the shelves have a unit variable cost of $27. The annual fixed costs of $450,000 will be unaffected by the special order and it will not affect any of its other operations. What would be the impact on profits if P&T accepts this special order? A. Profits will decrease by $6,000. B. Profits will increase by $31,200. C. Profits will increase by $600. D. Profits will decrease by $1,200.

Please help ASAP

Answer 1

Solution 1:

Profit per unit = 26 + 1.5 - 27 = 0.50

Profit will increase by = 1200* 0.5 = $600

Hence option "C" is correct.

Solution 2:

Net Cash provided or used by operating activities = 21000 -14000-18000+4000-7000+5000

= ($9000)

Hence option "B" is correct.