Kansas Company has a current production capacity level of 200,000 units per month. At this level of production, variable costs are $0.60 per unit and fixed costs are $0.50 per unit. Current monthly sales are 173,000 units. 3M Company has contacted Kansas Company about purchasing 20,000 units at $1.00 each. Current sales would not be affected by the special order and no additional fixed costs would be incurred on the special order. If the order is accepted, what is Kansas Company's change in profits

Question

Carly Branch

Business

8 February, 10:36

Kansas Company has a current production capacity level of 200,000 units per month. At this level of production, variable costs are $0.60 per unit and fixed costs are $0.50 per unit. Current monthly sales are 173,000 units. 3M Company has contacted Kansas Company about purchasing 20,000 units at $1.00 each. Current sales would not be affected by the special order and no additional fixed costs would be incurred on the special order. If the order is accepted, what is Kansas Company's change in profits

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Answers (1)

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Slade Waters · Answer 1

Effect on income = $8,000 increase

Explanation:

Giving the following information:

Variable costs are $0.60 per unit

3M Company has contacted Kansas Company about purchasing 20,000 units at $1.00 each.

Because it is a special offer and there is unused capacity, we will not take into account the fixed costs:

Effect on income = 20,000 * (1 - 0.6) = $8,000 increase