Burns decides to accept the special order for 4400 units

Reference no: EM13586763

Burns Industries currently manufactures and sells 14,000 power saws per month, although it has the capacity to produce 29,000 units per month. At the 14,000-unit-per-month level of production, the per-unit cost is $52, consisting of $33 in variable costs and $19 in fixed costs. Burns sells its saws to retail stores for $74 each. Allen Distributors has offered to purchase 4,400 saws per month at a reduced price. Burns can manufacture these additional units with no change in its present level of fixed manufacturing costs.

Assume that Allen Distributors offers to purchase the additional 4,400 saws at a price of $41 per unit. If Burns accepts this price, Burns' monthly gross profit on sales of power saws will:
Increase by $180,400.
Decrease by $145,200.
Increase by $35,200.

Decrease by $48,400.

Using an incremental analysis approach, Burns should consider accepting this special order only if the price per unit offered by Allen is at least:

$19.
$52.
$74.
$33.

Burns decides to accept the special order for 4,400 units from Allen at a unit sales price that will add $92,400 per month to its operating income. The unit price Burns charging Allen is:

$33.
$54.
$52.
$74.

Reference no: EM13586763

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