The Following Information Relates to the Klear Company for the Upcoming

question 33

Essay

The following information relates to the Klear Company for the upcoming year.
$$\begin{array} { | l | r | r | } \hline & \text { Amount } & \text { Per Unit } \\\hline \text { Sales } & \$ 9,000,000 & \$ 30.00 \\\hline \text { Cost of goods sold } & 7,200,000 & \underline { 24.00 } \\\hline \text { Gross margin } & 1,800,000 & 6.00 \\\hline \text { Operating expenses } & 675,000 & \underline { 2.25 } \\\hline \text { Operating profits } & \$ 1,125,000 & \$ 3.75 \\\hline\end{array}$$
The cost of goods sold includes $3,000,000 of fixed manufacturing overhead;the operating expenses include $450,000 of fixed marketing expenses.A special order offering to buy 50,000 units for $25.00 per unit has been made to Klear.Fortunately,there will be no additional operating expenses associated with the order and Klear has sufficient capacity to handle the order.Required:
a.How much will operating profits increase if Klear accepts the special order?
b.Assume that Klear is operating at full capacity.How much will operating profits change if Klear accepts the special order?

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Definitions:

Productivity

Refers to the measure of output per unit of input.

Input Demand Curves

Graphs showing the relationship between the price of inputs and the quantity of inputs demanded by producers.

Marginal Product

The elevation in production output stemming from the addition of one unit of input.

Profit Maximization

The process or strategy where a firm adjusts its production to achieve the highest possible profit.