The Following Information Relates to a Product Produced by Baywatch

question 9

Essay

The following information relates to a product produced by Baywatch Company:
$$\begin{array} { | l | r | } \hline \text { Direct materials } & \$ 50 \\\hline \text { Direct labor } & 35 \\\hline \text { Variable overhead } & 30 \\\hline \text { Fixed overhead } & 40 \\\hline \text { Unit cost } & \$ 155 \\\hline\end{array}$$
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 income 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:

Platelets

Small blood cells that play a crucial role in blood clotting and wound healing processes.

Red Blood Cells

Cells in the blood that carry oxygen from the lungs to the body's tissues and carbon dioxide back to the lungs.

Erythroblastosis Fetalis

A potentially fatal blood disorder in newborns caused by incompatibility between the blood types of the mother and child.

RhoGAM

A medication that prevents an Rh-negative mother from making antibodies against the Rh antigen.