ABC Corporation has a plant capacity of 100,000 units per month. Unit costs at capacity are: Direct materials $4.00 Direct labor 6.00 Variable manufacturing overhead 3.00 Fixed manufacturing overhead 1.00 Fixed marketing costs 7.00 Variable marketing costs 5.00 Current monthly sales are 95,000 units at $30.00 each. XYZ Company has contacted ABC Corporation about purchasing 2,000 units at $24.00 each. XYZ wants (1) a higher grade of DM which would cost an additional $5/unit and (2) XYZ’s name engraved on the 2,000 units which would require ABC to purchase of an engraving tool for $1,000. It should be noted that ABC would not incur variable marketing costs of $5/unit on the special order. Current sales would not be affected by the special order because of idle capacity.

1. What is ABC’s change in operating profits if the special order is accepted? 

a. $10,000 increase 

b. $11,000 increase 

c. $12,000 increase

d. $13,000 increase

2. Assume that current monthly sales are now 100,000 and, therefore, ABC Corporation is operating at full capacity. Calculate the Opportunity Cost of not selling 2,000 units to regular customers. 

a. $21,000 

b. $22,000 

c. $23,000 

d. $24,000