Diva Footwear normally sells boots for $90 per pair. An exporter has approached Diva about buying 1,000 pairs of boots for a one-time export deal for $85 per pair. Diva can avoid $5.00 per pair of the normal variable cost on this sale, but Diva must pay a fixed cost of $5,000 to have the boots shipped. Diva has the capacity to produce this order, and no regular sales will be affected. What affect will occur on Diva’s profits if the order is accepted? Profits will increase by $42,000. Profits will increase by $49,000. Profits will increase by $45,000. Profits will increase by $46,000. Profits will increase by $50,000.
The following information is available for Diva Footwear’s segments:
Platform Shoes Athletic Shoes Boots
Sales $120,000 $420,000 $360,000
Variable costs 64,000 220,000 140,000
Contribution margin 56,000 200,000 220,000
Direct fixed costs 45,000 70,000 90,000
Allocated fixed costs 20,000 70,000 60,000
Net income ($ 9,000) $ 60,000 $ 70,000
Diva Footwear normally sells boots for $90 per pair. An exporter has approached Diva about buying 1,000 pairs of boots for a one-time export deal for $85 per pair. Diva can avoid $5.00 per pair of the normal variable cost on this sale, but Diva must pay a fixed cost of $5,000 to have the boots shipped. Diva has the capacity to produce this order, and no regular sales will be affected. What affect will occur on Diva’s profits if the order is accepted?
|
Profits will increase by $42,000. |
||
|
Profits will increase by $49,000. |
||
|
Profits will increase by $45,000. |
||
|
Profits will increase by $46,000. |
||
|
Profits will increase by $50,000. |
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
