Present level of fixed manufacturing costs

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Reference no: EM13153098

Burns Industries currently manufactures and sells 20,000 power saws per month, although it has the capacity to produce 35,000 units per month. At the 20,000-unit-per-month level of production, the per-unit cost is $65, consisting of $40 in variable costs and $25 in fixed costs. Burns sells its saws to retail stores for $80 each. Allen Distributors has offered to purchase 5,000 saws per month at a reduced price. Burns can manufacture these additional units with no change in its present level of fixed manufacturing costs.

Refer to the information above. Assume that Allen Distributors offers to purchase the additional 5,000 saws at a price of $47 per unit. If Burns accepts this price, Burns' monthly gross profit on sales of power saws will:

a) Increase by $185,000.

b) Decrease by $240,000.

c) Decrease by $40,000.

d) Increase by $35,000.

Reference no: EM13153098

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