Business and finance: What will be the effect on profit of accepting the order?

Nov 17th, 2015
DotaCN
Category:
Accounting
Price: $5 USD

Question description

PowerDrive, Inc. produces a hard disk drive that sells for $175 per unit. The cost of producing 25,000 drives in the prior year was:
  
Direct material$625,000
Direct labor375,000
Variable overhead125,000
Fixed overhead1,500,000
Total cost$2,625,000
At the start of the current year, the company received an order for 3,800 drives from a computer company in China. Management of PowerDrive has mixed feelings about the order. On the 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 $135 per unit.
What will be the effect on profit of accepting the order?

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