-Burns Industries currently manufactures and sells 20,000 power saws per month, although it has the capacity to produce 35,000 units per month. At the 20,000-unit-per-month level of production, the per-unit cost is $65, consisting of $40 in variable costs and $25 in fixed costs. Burns sells its saws to retail stores for $80 each. Allen Distributors has offered to purchase 5,000 saws per month at a reduced price. Burns can manufacture these additional units with no change in its present level of fixed manufacturing costs.
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Refer to the information above. Assume that Allen Distributors offers to purchase the additional 5,000 saws at a price of $47 per unit. If Burns accepts this price, Burns' monthly gross profit on sales of power saws will:
Increase by $35,000.
Decrease by $240,000.
Decrease by $40,000.
Increase by $185,000.
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