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27 June, 07:49

Boone Products had the following unit costs:Direct materials $24Direct labor 10Variable overhead 8Fixed factory (allocated) 18A one-time customer has offered to buy 2,000 units at a special price of $48 per unit. Because of capacity constraints, 1,000 units will need to be produced during overtime. Overtime premium is $8 per unit. How much additional profit or loss will be generated by accepting the special order? a. $30,000 lossb. $4,000 profitc. $24,000 lossd. $4,000 loss

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  1. 27 June, 08:18
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    Answer: Option (b) is correct.

    Explanation:

    Given that,

    Direct materials = $24

    Direct labor = $10

    Variable overhead = $8

    Fixed factory (allocated) = $18

    Overtime premium = $8 per unit

    Purchased = 2,000 units at a special price of $48 per unit

    Contribution Margin (2000 - 1000 units) = special price per unit - Direct materials - Direct labor - Variable overhead

    = 48 - 24 - 10 - 8

    = $6 per unit

    Contribution margin for units produced during overtime = special price per unit - Direct materials - Direct labor - Variable overhead - Overtime premium

    = 48 - 24 - 10 - 8 - 7

    = $ (-1) per unit

    Total contribution = 1000 * 6 + 1000 * - 1

    = $6000 - $1000

    = $4000 Profit

    Therefore, additional profit will be generated by accepting the special order is $4000.
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