The David Corp

The David Corp. makes and sells 50,000 suitcases each year. The total fixed costs are $1,000,000. It has variable labor costs of $25 per unit; direct materials costs of $40 per unit; and variable overhead costs of $15 per unit. Its normal selling price is $120 per item. Assuming it does not have a capacity problem, what would be the effect on profits of accepting a special order of 10,000 suitcases, at a price of $90 per suitcase?

A) Profits would decrease by $100,000
B) Profits would increase by $100,000
C) Profits would increase by $250,000
D) Profits would decrease by $250,000

Correct Answer:

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