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

Zephram Corporation has a plant capacity of 200,000 units per month. Unit costs at capacity are: Direct materials $6.00 Direct labor 5.00 Variable overhead 4.00 Fixed overhead 2.00 Marketing—fixed 6.00 Marketing/distribution—variable 4.60 Current monthly sales are 190,000 units at $30.00 each. Q, Inc., has contacted Zephram Corporation about purchasing 2,500 units at $24.00 each. Current sales would not be affected by the one-time-only special order.

What is Zephram's change in operating profits if the one-time-only special order is accepted?

Expert Solution


Computation of Contribution margin for Special order
Sales Price per unit	$ 24.00
Less:Direct Material per unit	$ 6.00
Less:Direct labor per unit	$ 5.00
Less:Variable Overhead per unit	$ 4.00
Less:Variable marketing cost per unit	$ 4.60
Contribution margin per unit	$ 4.40
No. of units of Special order	2500	units
Total Contribution margin	$ 11,000
So the Operating Profits will increase by $11,000

ekkarill92 answered 2 years ago

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