Question

**Please show work or explain**

1.) What are the differential revenues associated with the special order?Jake Company is considering a special order for 5,000 units at a price of $60 per unit. Jake's product normally sells for $84 per unit and has variable manufacturing costs of $45 per unit and variable selling costs of $9 per unit. Fixed manufacturing costs are $150,000 and fixed selling and administrative costs are $300,000. Jake has capacity to produce 30,000 units and is currently producing 20,000 units. If the order is accepted, , Jake will incur legal fees of $7,500 in connection with the order, but there will be no variable selling costs on the special order. What are the differential revenues associated with the special order?

a. $75,000

b. $120,000

c. $420,000

d. $300,000

e. None of these

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2.) What are the differential revenues associated with the special order?Jake Company is considering a special order for 5,000 units at a price of $60 per unit. Jake's product normally sells for $84 per unit and has variable manufacturing costs of $45 per unit and variable selling costs of $9 per unit. Fixed manufacturing costs are $150,000 and fixed selling and administrative costs are $300,000. Jake has capacity to produce 30,000 units and is currently producing 20,000 units. If the order is accepted, , Jake will incur legal fees of $7,500 in connection with the order, but there will be no variable selling costs on the special order. What are the differential costs associated with the special order?

a. $232,500

b. $67,500

c. $127,500

d. $322,500

e. None of these

Answer 1

1) Differential revenue associated with the special order will be equal to the revenue from sale of units in special order (i.e. 5,000 units). Therefore, if the special order is accepted then there will be an increase in gross revenue by $300,000 (i.e. 5,000 units*$60 per unit).

Therefore the differential revenues associated with the special order is $300,000. Hence the correct option is d) $300,000.

2) The differential cost associated with the special order will be equal to additional cost to be incurred for the special order. This cost will include variable manufacturing cost for units in special order and legal fees incurred for the special order. The total differential cost associated with special order is calculated as follows:-

Differential Costs = Variable Manufacturing cost+Legal fees

= (5,000 units*$45 per unit)+$7,500

= $225,000+$7,500 = $232,500

Therefore the correct option is a) $232,500.