Problem 1: Gamboa’s Company has a capacity of 50,000 units per year and is currently selling all 50,000 for $500 each. Keller Company has approached Gamboa about buying 5,000 units for only $450 each. Gamboa has a normal variable cost of $380 per unit, including $50 per unit in direct labor. Gamboa could produce the special order on an overtime shift. This would result in direct labor being paid overtime at 150% of the normal pay rate. Additionally, $50,000 in additional fixed costs would be association with the order. What will be the impact on profits of accepting the order?
A. Profits would decrease $350,000
B. Profits would increase $350,000
C. Profits would increase $175,000
D. Profits would increase $225,000.
Problem 2: Strait Guitar Company sells a single product. Strait estimates demand and costs at various activity levels as follows:
Units Sold Price Total Variable costs Fixed Costs
120,000 $48 $3,000,000 $1,000,000
140,000 $45 $3,500,000 $1,000,000
160,000 $40 $4,000,000 $1,000,000
180,000 $35 $4,500,000 $1,000,000
200,000 $30 $5,000,000 $1,000,000
What price should Strait charge to maximize profits?
A. $48
B. $45
C. $40
D. $35
E. $30