The Following Information Relates to a Product Produced by Baywatch

question 84

Essay

The following information relates to a product produced by Baywatch Company:
$$\begin{array} { l r } \text { Direct materials } & \$ 50 \\\text { Direct labor } & 35 \\\text { Variable overhead } & 30 \\\text { Fixed overhead } & 40 \\ \text { Unit cost } & \$ 155\end{array}$$
Fixed selling costs are $1,000,000 per year. Although production capacity is 900,000 units per year, Baywatch expects to produce only 800,000 units next year. The product normally sells for $180 each. A customer has offered to buy 60,000 units for $150 each. The customer will pay the transportation charge on the units purchased.
Required:
a. Compute the effect on operating profits if Baywatch accepts the special order.
b. If Baywatch accepts the special order, how much could normal sales drop before all of the differential profits disappear?

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Definitions:

Congenital Deafness

Congenital deafness refers to hearing loss that is present at birth, which can result from genetic factors, abnormalities in the ear's structure, or maternal exposure to certain substances or infections during pregnancy.

Sensorineural

Pertaining to or involving both sensory and neural mechanisms, often used in reference to hearing loss caused by damage to the inner ear or auditory nerve.

Acoustic

Pertains to sound, or the science of sound, including its production, transmission, and effects.

Gestalt Principle

A theory in psychology that proposes the human brain sees objects in their entirety before perceiving their individual parts, emphasizing the whole of anything is greater than its parts.