Impact on profits of accepting the order


Garland Company has a capacity of 50,000 units per year and is currently selling all 50,000 for $500 each. Garcia Company has approached Garland about buying 5,000 units for only $450 each. Garland has a normal variable cost of $380 per unit, including $50 per unit in direct labor. Garland 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.

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Finance Basics: Impact on profits of accepting the order
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