Beachwood Classics makes furniture for children. It has received a special order for 1,500 units that will require it to sell a unit (a table and two chairs) for $35. The regular average selling price is $40 per unit. The unit product cost is broken down as follows: direct labor, $5.50; direct materials, $8.75; variable overhead, $1.75; and fixed overhead, $3.25. The company had already budgeted its production at 6,500 units. If the company has spare capacity, what will be the incremental contribution of the special order to operating profit? A: $28,500 B: $31,125 C: $23,625 D: $21,000
Beachwood Classics makes furniture for children. It has received a special order for 1,500 units that will require it to sell a unit (a table and two chairs) for $35. The regular average selling price is $40 per unit. The unit product cost is broken down as follows: direct labor, $5.50; direct materials, $8.75; variable overhead, $1.75; and fixed overhead, $3.25. The company had already budgeted its production at 6,500 units. If the company has spare capacity, what will be the incremental contribution of the special order to operating profit? A: $28,500 B: $31,125 C: $23,625 D: $21,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:**Beachwood Classics Special Order Analysis**
Beachwood Classics, a company specializing in children's furniture, has received a special order for 1,500 furniture units. This order requires the company to sell each unit, consisting of a table and two chairs, for $35. Typically, the average selling price is $40 per unit.
The breakdown of unit product costs is as follows:
- **Direct Labor:** $5.50
- **Direct Materials:** $8.75
- **Variable Overhead:** $1.75
- **Fixed Overhead:** $3.25
The company previously budgeted its production at 6,500 units. Given that Beachwood Classics has spare capacity, the task is to determine the incremental contribution of the special order to the operating profit.
**Options for Incremental Contribution to Operating Profit:**
- **A:** $28,500
- **B:** $31,125
- **C:** $23,625
- **D:** $21,000
To solve this, calculate the difference in revenue and the variable costs for the special order and then assess its impact on operating profit.
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