Question
Pembina produces a hard disk drive that sells for $173 per unit. The cost of producing 25,000 drives in the prior year was: Direct material
Pembina produces a hard disk drive that sells for $173 per unit. The cost of producing 25,000 drives in the prior year was:
Direct material | $ | 725,000 | |
Direct labor | 450,000 | ||
Variable overhead | 225,000 | ||
Fixed overhead | 1,500,000 | ||
Total cost | $ | 2,900,000 |
At the start of the current year, the company received an order for 3,260 drives from a computer company in China. Management of Pembina has mixed feelings about the order. On one hand, they welcome the order because they currently have excess capacity. Also, this is the companys first international order. On the other hand, the company in China is willing to pay only $131 per unit. What will be the effect on profit of accepting the order? (Enter decrease in profit using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Profit will Increase or Decrease? By $_________
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