Question
Clintonproduces a hard disk drive that sells for $176per unit. The cost of producing25,000drives in the prior year was: Direct material $700,000 Direct labor 450,000
Clintonproduces a hard disk drive that sells for $176per unit. The cost of producing25,000drives in the prior year was:
Direct material $700,000
Direct labor 450,000
Variable overhead 225,000
Fixed overhead 1,475,000
Total cost
$2,850,000
At the start of the current year, the company received an order for2,770drives from a computer company in China. Management ofClintonhas mixed feelings about the order. On one hand, they welcome the order because they currently have excess capacity. Also, this is the company's first international order. On the other hand, the company in China is willing to pay only $129per unit.
What will be the effect on profit of accepting the order?
Profit will (Increase, Decrease) by ?
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