BEC MCQ – cant figure out Part 2

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  • #194413 Reply

    In a lean accounting environment, a company accepts a special order to make 200 units of a product each month for the next two months for $130 per unit. The company normally sells the unit for $170 per unit with variable costs per unit at $80 per unit. The company plans to use excess capacity. By what amount would this special order increase profit. Answer is 20K I cant figure it out – someone please help thanks

    #1309754 Reply

    Contribution margin = (130-80)= 50 * 200* 2months

    #3004170 Reply
    Gias Ahmed

    The special order will be generating a contribution per unit of
    $130 – $80 = $50
    As 400 units of the product would be produced ( 200 units for each month).
    Total contribution generated by the special order would be 400 x $50 = $20,000.
    As the company is utilizing excess capacity , no additional fixed costs are assumed to have been incurred.
    Increase in profit would be $20,000.

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