Ratzlaff Company has a current production level of 20,000 units per month with a regular selling price equal to $2.50/unit.

Unit costs at 20,000 unit level are:

Direct materials $0.25

Direct labor 0.40

Variable manufacturing overhead 0.15

Fixed manufacturing overhead 0.20

Variable selling costs 0.60

Fixed selling costs 0.20

36. Current monthly sales are 18,000 units (IDLE CAPACITY). Jim Company has contacted Ratzlaff Company about purchasing 1,500 units at $2.00 each. Current sales would not be affected by the one-time-only special order, and variable selling costs ($.60/unit) would not be incurred on the special order.

What is Ratzlaff Companys change in operating profits if the special order is accepted?

1. $400 increase in operating profits

2. $400 decrease in operating profits

c. $1,800 increase in operating profits

d. $1,800 decrease in operating profits

37. Current monthly sales are now 20,000 units (FULL CAPACITY). Jim Company has contacted Ratzlaff Company about purchasing 1,500 units at $2.00 each. Current sales would be adversely affected by the one-time-only special order (resulting in OPPORTUNITY COST) although variable selling costs ($.60/unit) would not be incurred on the special order. Variable selling costs ($.60/unit) are only incurred on sales to regular customers.

What is Ratzlaff Companys opportunity cost if the special order is accepted?

1. $1,450 c. $1,850

2. $1,650 d. $2,050