Good buy electronics has been offered $21,600 to produce 12,000 external hard drives for a customer. good buy has budgeted sales of 200,000 hard drives totaling $500,000, with fixed costs of $260,000 and total costs of $420,000. assuming that good buy has the capacity to produce the additional units and that accepting this order will not affect any other orders, what effect will accepting the order have on good buy’s profit? a. incremental profit will increase by $21,600 b. incremental profit will decrease by $9,600 c. incremental profit will increase by $12,000 d. incremental profit will decrease by $3,600

$12,000

option c is correct answer

Explanation:

Given:

Offered price = $21,600

Number of units to be ordered = 12,000

Budgeted sales = 200,000 drives

Total cost = $500,000

Fixed costs = $260,000

Total costs = $420,000

Now,

Variable cost = Total cost - Fixed costs

Variable cost = $420,000 - $260,000

Variable cost = $160,000

Therefore,

Variable cost per unit =

or

variable cost per unit = $0.80

Thus,

Variable cost for 12,000 units = $0.80 × 12,000 = $9,600

hence,

Incremental profit = Offered price - Total variable cost

or

Incremental profit = $21,600 - $9,600 = $12,000

option c is correct answer

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