Question
URGENT Each year Molly Madison makes and sells 30,000 statues of The Thinker for $60/unit. She only has capacity to make 30,000 statues. Unit costs,
URGENT
Each year Molly Madison makes and sells 30,000 statues of The Thinker for $60/unit. She only has capacity to make 30,000 statues. Unit costs, based on this quantity, is as follows:
Direct materials | $7 |
---|---|
Direct labour | 5 |
Variable production overhead | 12 |
Fixed overhead | 10 |
Variable selling expenses | 5 |
Fixed overhead will be incurred regardless of production. An art dealer wants 5,000 statues with his label. The label will cost Molly an additional $1, but there would be no variable selling expenses on this special sale. Molly decides to accept the art dealers order at $58 per unit because she believes that he could become a valuable resource in the future.
How much would Mollys pre-tax profit change by accepting the order? (5 marks)
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