Question: Montgomery Company has a normal plant capacity of 37,500 units per month. Because of an extra large quantity of inventory on hand, it expects to produce only 30,000 units in May. The present selling price is $13.50 per unit. Montgomery has an opportunity to sell 7,500 additional units at $9.00 per unit to an exporter who plans to market the product under its own brand name in a foreign market. The additional business is, therefore, not expected to affect the regular selling price or quantity of sales of Montgomery Company. The cost to make the product is:
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Direct Materials
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$ 3.00
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Direct Labor
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$ 1.25
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Variable Overhead
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$ 4.00
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Fixed Overhead
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$ 3.00
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Total Cost
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$11.25
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Total fixed costs won't change if this order is accepted but special shipping charges on the order will cost a total of $2,000. Determine what Montgomery's profit or loss will be from selling the 7,500 additional units to the exporter. Clearly state both the amount and whether it is a profit or a loss.