Now additional profit is not a term to study or to know how to calculate. In this question, Aloysius Dixon had a target of producing 10000 tables but the manger produced only 8000 tables. Now the sales will not not turn out like he targeted it to be, therefore he will produce another 2000 tables to reach his target.
They gave us 3 options in which you can produce the missing 2000 tables with and they asked us to calculate how much we will earn or lose when producing those 2000 tables in each option. Therefore it is called "Additional Profit/Loss" for producing the 2000 tables.
1)In the first Option(Buy In) :
You will purchase 2000 tables for 920 each. Meaning 2000*920= $1840000. To calculate the profit/loss we will do the same as the figure produced for the 8000 tables.
First of Sales will be equal to 2 200 000 because you are producing 2000 tables each will be sold for 1100 (read the first 2 sentences again fo the question). Meaning 2000*1100 = $2200000
Now it will look like this:
Sales 2 200 000
Less Buy in, lease, training 1 840 000
Direct materials 0
Direct wages 0
Variable production overhead 0
Variable sales overhead 60 000 >>> why 60000? because it says 50% variable and 50% fixed so the sales overhead amount for the 8000 tables was 480000 for the total, now get the variable 50%*480000. We will calculate for one table so 240000/8000=30 for one table. Now you are producing 2000 tables so 2000*30= 60000
Total variable costs 1 900 000 >>> 1840000+60 000= 1 900 000
Profit = Sales - total varaible costs = 2 200 000- 1 900 000= $300 000
Okay..this is for option 1, same will go for option 2 n 3. Hope you understood anything from what I wrote
