Deck 17: Activity Resource Usage Model and Tactical Decision Making

Question 1

Future costs that differ across alternatives describe

A) relevant costs.
B) target cost.
C) full costs.
D) activity-based costs.

Answer 1

A

Question 2

The use of relevant cost data to identify the alternative that provides the greatest benefit to the organization describes

A) target cost analysis.
B) functional cost analysis.
C) activity cost analysis.
D) tactical cost analysis.

Answer 2

D

Question 3

Which of the following costs is NOT relevant to a special-order decision?

A) the direct labor costs to manufacture the special-order units
B) the variable manufacturing overhead incurred to manufacture the special-order units
C) the portion of the cost of leasing the factory that is allocated to the special order
D) all of these costs are relevant

Answer 3

C

Question 4

Which of the following statement is true concerning the nature of tactical decisions?

A) Tactical decisions are often small-scale actions.
B) Tactical decisions often have an immediate or limited end in view.
C) Tactical decisions should support alternatives that result in long-term competitive advantage.
D) All of these statements are true.

Question 5

Tactical decision making relies

A) only on relevant cost information.
B) only on qualitative factors.
C) on relevant costs as well as other qualitative factors.
D) on neither relevant costs nor qualitative decisions.

Question 6

Which of the following costs is NOT relevant to a make-or-buy decision?

A) $10,000 of direct labor used to manufacture the parts
B) $30,000 of depreciation on the plant used to manufacture the parts
C) the supervisor's salary of $25,000 that will be avoided if the part is purchased from an outside supplier
D) $15,000 in rent from leasing the production space to another company if the part is purchased from an outside supplier

Question 7

Which of the following statements is TRUE when making a decision between two alternatives?

A) Variable costs may not be relevant when the decision alternatives have the same activity levels.
B) Variable costs are not relevant when the decision alternatives have different activity levels.
C) Sunk costs are always relevant.
D) Fixed costs are never relevant.

Question 8

The Titanic hit an iceberg and sank.In deciding whether or not to salvage the ship, its book value is a(n)

A) relevant cost.
B) sunk cost.
C) opportunity cost.
D) discretionary cost.

Question 9

Relevant costs are

A) past costs.
B) future costs.
C) full costs.
D) cost drivers.

Question 10

Sunk costs are

A) future costs that have no benefit.
B) relevant costs that have only short-run benefits.
C) target costs.
D) always irrelevant.

Question 11

An important qualitative factor to consider regarding a special order is the

A) variable costs associated with the special order.
B) avoidable fixed costs associated with the special order.
C) effect the sale of special-order units will have on the sale of regularly priced units.
D) incremental revenue from the special order.

Question 12

Which item is NOT an example of a sunk cost?

A) materials needed for production
B) purchase cost of machinery
C) depreciation
D) all are sunk costs

Question 13

The steps in the tactical decision making process are: What is the proper sequence of steps?

A) I, II, V, III, IV
B) II, I, V, III, IV
C) V, II, III, I, IV
D) V, III, II, IV, I

Question 14

______________ are future costs that differ across alternatives.

A) Relevant costs
B) Irrelevant costs
C) Sunk costs
D) Past costs

Question 15

Which of the following is NOT a step in the tactical decision-making process?

A) Compare full costs and benefits for alternatives.
B) Identify feasible alternatives.
C) Select the best alternative.
D) Recognize and define the problem.

Question 16

Sound tactical decision making

A) only concerns the short run.
B) consists of large scale actions that serve a broad purpose.
C) consists of supporting the strategic objectives of the firm.
D) only concerns the long run.

Question 17

Qualitative factors that should be considered when evaluating a make-or-buy decision are

A) the quality of the outside supplier's product.
B) whether the outside supplier can provide the needed quantities.
C) whether the outside supplier can provide the product when it is needed.
D) all of these.

Question 18

_______________ consists of choosing among alternatives with an immediate or limited end in view.

A) Long-run decision making
B) Tactical decision making
C) Universal decision making
D) All of these

Question 19

A purchasing agent has two potential firms from which to buy materials for production.If both firms charge the same price, the material cost is a(n)

A) irrelevant cost.
B) relevant cost.
C) sunk cost.
D) opportunity cost.

Question 20

In order for costs or benefits to be relevant, what must be true?

A) All decisions must relate to future.
B) Identifying relevant costs and benefits is an easy process.
C) Relevancy will relate both to the future and the past.
D) All of these are true statements.

Question 21

In the activity resource model, flexible resources are

A) resources acquired in advance of usage.
B) resources acquired as used and needed.
C) usually acquired in lumpy amounts.
D) are normally fixed or mixed costs.

Question 22

The U.S.government has set up foreign trade zones (FTZ) that

A) are located on U.S. soil but are considered to be outside of U.S. commerce for tariff purposes.
B) are located in foreign countries and designed to export to the United States.
C) are located in foreign countries and are designed to import from the United States.
D) are located in the United States and are considered part of the United States for tariff purposes.

Question 23

Upfront resource spending

A) is always relevant because it relates to the future.
B) is always relevant because it could reduce future costs.
C) is a sunk cost and therefore never relevant.
D) is always relevant because upfront resource spending will generate future revenues or benefits.

Question 24

_______________ is(are) the cost of acquiring activity capacity.

A) Joint costs
B) Resource spending
C) Absorption costing
D) Variable costing

Question 25

Which of the following would be TRUE?

A) Flexible Demand changes Irrelevant
B) Flexible Demand constant Irrelevant
C) Committed Demand increase > Unused capacity Not relevant
D) Committed Demand increase < Unused capacity Relevant

Question 26

Which of the following costs is NOT relevant for special decisions?

A) incremental costs
B) sunk costs
C) avoidable costs
D) all of the above costs are relevant for special decisions

Question 27

For flexible resources, which of the following statements is true?

A) A change in resource spending will only occur if the demand for a resource drops permanently and exceeds demand enough so the activity capacity will be reduced.
B) Often, resources are acquired in advance for multiple periods and are therefore irrelevant.
C) Decisions often affect multi-period capabilities.
D) If the demand for an activity changes across alternatives, then resource spending will change and the cost of the activity will be relevant to the decision.

Question 28

Which of the following items would be classified as flexible resources?

A) salaried employees
B) depreciation on building
C) fuel to generate electricity internally
D) lease on machinery

Question 29

A decision to make a component internally versus through a supplier is a

A) special-order decision.
B) keep-or-drop a product-line decision.
C) make-or-buy decision.
D) both a and c.

Question 30

Vest Industries manufactures 40,000 components per year.The manufacturing cost of the components was determined as follows: An outside supplier has offered to sell the component for $12.75.
What is the effect on income if Vest Industries purchases the component from the outside supplier?

A) $270,000 decrease
B) $270,000 increase
C) $30,000 decrease
D) $30,000 increase

Question 31

Foster Industries manufactures 20,000 components per year.The manufacturing cost of the components was determined as follows: If the component is not produced by Foster, inspection of products and provision of power costs will only be 10 percent of the production costs; moving materials costs and setting up equipment costs will only be 50 percent of the production costs; and supervision costs will amount to only 40 percent of the production amount.An outside supplier has offered to sell the component for $25.50.
What is the effect on income if Foster Industries purchases the component from the outside supplier?

A) $25,000 increase
B) $45,000 increase
C) $90,000 decrease
D) $90,000 increase

Question 32

Foster Industries manufactures 20,000 components per year.The manufacturing cost of the components was determined as follows: An outside supplier has offered to sell the component for $25.50.
Foster Industries can rent its unused manufacturing facilities for $45,000 if it purchases the component from the outside supplier.
What is the effect on income if Foster purchases the component from the outside supplier?

A) $45,000 increase
B) $15,000 increase
C) $75,000 decrease
D) $105,000 increase

Question 33

Which of the following items would be classified as committed resources (short-term)?

A) salaried employees
B) depreciation on building
C) fuel to generate electricity internally
D) lease on machinery

Question 34

Abbott Company is considering purchasing a new machine to replace a machine purchased one year ago that is not achieving the expected results.The following information is available: Which of these items is IRRELEVANT?

A) Expected maintenance costs of new machine
B) Purchase cost of existing machine
C) Expected maintenance costs of existing machine
D) Expected resale value of existing machine

Question 35

Which of the following costs is NOT relevant to a decision to sell a product at split-off or process the product further and then sell the product?

A) joint costs allocated to the product
B) the selling price of the product at split-off
C) the additional processing costs after split-off
D) the selling price of the product after further processing

Question 36

Salda Industries employs 500 workers in the factory.These workers produced 85,000 units in 2009.Due to a special order, the units produced in 2010 increased to 95,000 units.However, Salda produced these units without adding workers.How is that possible?

A) The plant had some unused activity capacity.
B) The employees were a flexible resource in this situation.
C) The labor cost associated with the additional units sold will be a relevant cost.
D) None of these

Question 37

Which of the following costs is relevant to a make-or-buy decision?

A) original cost of the production equipment
B) annual depreciation of the equipment
C) the amount that would be received if the production equipment were sold
D) the cost of direct materials purchased last month and used to manufacture the component

Question 38

Which of the following items would be classified as committed resources (long-term)?

A) salaried employees
B) depreciation on building
C) lease on machinery
D) both b and c

Question 39

Which of the following is NOT a way that companies might reduce tariffs?

A) Alter materials to increase the domestic content.
B) Restrict the amount of imported materials.
C) Increase the amount of imported materials.
D) Utilize foreign trade zones.

Question 40

Foster Industries manufactures 20,000 components per year.The manufacturing cost of the components was determined as follows: An outside supplier has offered to sell the component for $25.50.
What is the effect on income if Foster Industries purchases the component from the outside supplier?

A) $30,000 decrease
B) $30,000 increase
C) $90,000 decrease
D) $90,000 increase

Question 41

Figure 17-2 Walton Company manufactures a product with the following costs per unit at the expected production level of 84,000 units:
The company has the capacity to produce 90,000 units.The product regularly sells for $120.

-
Refer to Figure 17-2.If a wholesaler offered to buy 4,500 units for $100 each, the effect of the special order on income would be a

A) $153,000 increase.
B) $45,000 increase.
C) $450,000 increase.
D) $90,000 decrease.

Question 42

Miller Company produces speakers for home stereo units.The speakers are sold to retail stores for $30.Manufacturing and other costs are as follows: The variable distribution costs are for transportation to the retail stores.The current production and sales volume is 20,000 per year.Capacity is 25,000 units per year.
The speakers are currently unpackaged.Packaging them individually would increase costs by $1.20 per unit.However, the units could then be sold for $33.00.All other information remains the same as the original data.

-What is the effect on profits if Miller Company packages the speakers?

A) decrease of $36,000
B) decrease of $24,000
C) increase of $36,000
D) no change

Question 43

Figure 17-1 The following information pertains to the EWIN Company's three products:
Refer to Figure 17-1.When EWIN converted over to ABC it discovered the following:



- The product margin for product M using ABC would be

A) $9,000.
B) $13,840.
C) $19,000.
D) $27,000.

Question 44

The following information pertains to Ewing Company's three products:

-Assume that product F is discontinued and the space is used to produce

A) decrease by $2,070.
B) increase by $1,200.
C) decrease by $270.
D) increase by $2,640.
E) Product E's production is increased to 2,200 units per month, but E's selling price of all units of E is reduced to $10.20. Monthly profits will

Question 45

Figure 17-1 The following information pertains to the EWIN Company's three products:
Refer to Figure 17-1.When EWIN converted over to ABC it discovered the following:


-The operating income for EWIN would be

A) $9,000.
B) $13,840.
C) $19,000.
D) $27,000.

Question 46

The following information pertains to Ewing Company's three products:

- Assume that product F is discontinued and the space used to produce product F is rented for $600 per month.Monthly profits will

A) increase by $360.
B) decrease by $5,400.
C) increase by $600.
D) increase by $840.

Question 47

Miller Company produces speakers for home stereo units.The speakers are sold to retail stores for $30.Manufacturing and other costs are as follows: The variable distribution costs are for transportation to the retail stores.The current production and sales volume is 20,000 per year.Capacity is 25,000 units per year.
A Tennessee manufacturing firm has offered a one-year contract to supply speaker parts at a cost of $6.00 per unit.If Miller Company accepts the offer, it will be able to reduce variable costs by 30 percent and rent unused space to an outside firm for $18,000 per year.All other information remains the same as the original data.

-What is the effect on profits if Miller Company buys from the Tennessee firm?

A) decrease of $19,000
B) increase of $19,000
C) increase of $13,000
D) increase of $6,000

Question 48

Harris Company uses 5,000 units of part AA1 each year.The cost of manufacturing one unit of part AA1 at this volume is as follows: An outside supplier has offered to sell Harris Company unlimited quantities of part AA1 at a unit cost of $31.00.If Harris Company accepts this offer, it can eliminate 50 percent of the fixed costs assigned to part AA1.Furthermore, the space devoted to the manufacture of part AA1 would be rented to another company for $24,000 per year.If Harris Company accepts the offer of the outside supplier, annual profits will

A) increase by $29,000.
B) increase by $14,500.
C) increase by $22,000.
D) increase by $2,500.

Question 49

Figure 17-2 Walton Company manufactures a product with the following costs per unit at the expected production level of 84,000 units:
The company has the capacity to produce 90,000 units.The product regularly sells for $120.

-
Refer to Figure 17-2.A wholesaler has offered to pay $110 a unit for 7,500 units.
If the special order is accepted, the effect on operating income would be a

A) $75,000 decrease.
B) $429,000 increase.
C) $495,000 increase.
D) $249,000 increase.

Question 50

Firms may be asked to accept a special order of their product for a reduced price if

A) it can be concealed from the government.
B) excess capacity exists.
C) the order is small.
D) the plant is producing at maximum capacity.

Question 51

Miller Company produces speakers for home stereo units.The speakers are sold to retail stores for $30.Manufacturing and other costs are as follows: The variable distribution costs are for transportation to the retail stores.The current production and sales volume is 20,000 per year.Capacity is 25,000 units per year.
A Tennessee manufacturing firm has offered a one-year contract to supply speaker parts at a cost of $16.00 per unit.If Miller Company accepts the offer, it will be able to rent unused space to an outside firm for $18,000 per year.All other information remains the same as the original data.

-What is the effect on profits if Miller Company buys from the Tennessee firm?

A) decrease of $19,000
B) increase of $19,000
C) increase of $38,000
D) decrease of $6,000

Question 52

The following information pertains to the Ewing Company's three products:

-Assume that the selling price of product F is increased to $8.25 with a reduction in monthly sales to 400 units.Monthly profits will

A) increase by $2,070.
B) increase by $420.
C) increase by $180.
D) decrease by $60.

Question 53

Figure 17-1 The following information pertains to the EWIN Company's three products:
Refer to Figure 17-1.When EWIN converted over to ABC it discovered the following:


-The operating income for EWIN would be

A) $9,000.
B) $8,500.
C) $19,000.
D) $27,000.

Question 54

Figure 17-1 The following information pertains to the EWIN Company's three products:


- Refer to Figure 17-1.The product margin for product M using functional-based costing would be

A) $9,000.
B) $13,840.
C) $19,000.
D) $41,500.

Question 55

The operations of Knickers Corporation are divided into the Pacers Division and the Bulls Division.Projections for the next year are as follows: Operating income for Knickers Corporation as a whole if the Bulls Division were dropped would be

A) $99,750.
B) $84,000.
C) $68,250.
D) $36,750.

Question 56

The operations of Smits Corporation are divided into the Childs Division and the Jackson Division.Projections for the next year are as follows: Operating income for Smits Corporation as a whole if the Jackson Division were dropped would be

A) $22,500.
B) $40,000.
C) $50,000.
D) $60,000.

Question 57

Vest Industries manufactures 40,000 components per year.The manufacturing cost of the components was determined as follows: An outside supplier has offered to sell the component for $12.75.
Vest Industries can rent its unused manufacturing facilities for $45,000 if it purchases the component from the outside supplier.
What is the effect on income if Vest purchases the component from the outside supplier?

A) $225,000 decrease
B) $195,000 increase
C) $165,000 decrease
D) $135,000 increase

Question 58

A decision that focuses on whether a specially priced order should be accepted or rejected is a

A) special-order decision.
B) keep-or-drop a product-line decision.
C) make-or-buy decision.
D) both a and c.

Question 59

The following information pertains to Dodge Company's three products:

- Assume that product C is discontinued and the extra space is rented for $300 per month.All other information remains the same as the original data.Annual profits will

A) increase by $75.
B) decrease by $75.
C) increase by $525.
D) remain the same.

Question 60

A decision to make or eliminate an unprofitable product is a

A) special-order decision.
B) keep-or-drop a product-line decision.
C) make-or-buy decision.
D) both b and c.

Question 61

Reggie Corporation manufactures a single product with the following unit costs for 1,000 units: Recently, a company approached Reggie Corporation about buying 100 units for $5,100 each.Currently, the models are sold to dealers for $7,800.Reggie Corporation's capacity is sufficient to produce the extra 100 units.No additional selling expenses would be incurred on the special order.

-
How much will income change if the special order is accepted?

A) increase by $398,400
B) decrease by $180,000
C) increase by $111,600
D) no change

Question 62

Miller Company produces speakers for home stereo units.The speakers are sold to retail stores for $30.Manufacturing and other costs are as follows: The variable distribution costs are for transportation to the retail stores.The current production and sales volume is 20,000 per year.Capacity is 25,000 units per year.

-
A San Diego wholesaler has proposed to place a special one-time order of 10,000 units at a reduced price of $24 per unit.The wholesaler would pay all distribution costs, but there would be additional fixed selling and administrative costs of $3,000.All other information remains the same as the original data.What is the effect on profits if the special order is accepted?

A) increase of $75,000
B) increase of $57,000
C) decrease of $168,000
D) increase of $12,000

Question 63

Boone Products had the following unit costs: A one-time customer has offered to buy 2,000 units at a special price of $48 per unit.Because of capacity constraints, 1,000 units will need to be produced during overtime.Overtime premium is $8 per unit.How much additional profit (loss) will be generated by accepting the special order?

A) $30,000 loss
B) $4,000 loss
C) $24,000 loss
D) $4,000 profit

Question 64

Boone Products had the following unit costs: A one-time customer has offered to buy 1,000 units at a special price of $48 per unit.Assuming that sufficient unused production capacity exists to produce the order and no regular customers will be affected by the order, how much additional profit (loss) will be generated from the special order?

A) $12,000 loss
B) $14,000 profit
C) $48,000 profit
D) $6,000 profit

Question 65

Stars Manufacturing Company produces Products A1, B2, C3, and D4 through a joint process.The joint costs amount to $200,000.

- If Product B2 is processed further, profits will

A) increase by $30,000.
B) decrease by $3,000.
C) increase by $32,000.
D) increase by $2,000.

Question 66

Meco Company produces a product that has a regular selling price of $360 per unit.At a typical monthly production volume of 2,000 units, the product's average unit cost of goods sold amounts to $270.Included in this average is $120,000 of fixed manufacturing costs.All selling and administrative costs are fixed and amount to $30,000 per month. Meco Company has just received a special order for 1,000 units at $240 per unit.The buyer will pay transportation, and the regular selling price will not be affected if Meco accepts the order.

-
Assuming Meco Company has excess capacity, the effect on profits of accepting the order would be a

A) $60,000 increase.
B) $60,000 decrease.
C) $30,000 increase.
D) $30,000 decrease.

Question 67

Meco Company produces a product that has a regular selling price of $360 per unit.At a typical monthly production volume of 2,000 units, the product's average unit cost of goods sold amounts to $270.Included in this average is $120,000 of fixed manufacturing costs.All selling and administrative costs are fixed and amount to $30,000 per month. Meco Company has just received a special order for 1,000 units at $240 per unit.The buyer will pay transportation, and the regular selling price will not be affected if Meco accepts the order.

-
Assuming Meco Company is operating at capacity and accepting the order would require an offsetting reduction in regular sales, the effect on profits of accepting the order would be a

A) $240,000 decrease.
B) $30,000 increase.
C) $120,000 decrease.
D) $150,000 decrease.

Question 68

If there is excess capacity, the minimum acceptable price for a special order must cover

A) variable costs associated with the special order.
B) variable and fixed manufacturing costs associated with the special order.
C) variable and incremental fixed costs associated with the special order.
D) variable costs and incremental fixed costs associated with the special order plus the contribution margin usually earned on regular units.

Question 69

Reggie Corporation manufactures a single product with the following unit costs for 1,000 units: Recently, a company approached Reggie Corporation about buying 100 units for $5,100 each.Currently, the models are sold to dealers for $7,800.Reggie Corporation's capacity is sufficient to produce the extra 100 units.No additional selling expenses would be incurred on the special order.

-
If Reggie Corporation wants to increase its profit by $18,000 on the special order, what is the minimum price it should charge per unit?

A) $4,014
B) $4,164
C) $5,100
D) $6,900

Question 70

The following information relates to a product produced by Creamer Company: Fixed selling costs are $500,000 per year, and variable selling costs are $12 per unit sold.Although production capacity is 600,000 units per year, the company expects to produce only 400,000 units next year.The product normally sells for $120 each.A customer has offered to buy 60,000 units for $90 each.
The incremental cost per unit associated with the special order is

A) $84.
B) $81.
C) $69.
D) $64.

Question 71

Stars Manufacturing Company produces Products A1, B2, C3, and D4 through a joint process.The joint costs amount to $200,000.

- Which product(s) should be sold at split-off to maximize profits in the short run?

A) Product A1
B) Product D4
C) Product B2
D) Products A1 and D4

Question 72

Reggie Corporation manufactures a single product with the following unit costs for 1,000 units: Recently, a company approached Reggie Corporation about buying 100 units for $5,100 each.Currently, the models are sold to dealers for $7,800.Reggie Corporation's capacity is sufficient to produce the extra 100 units.No additional selling expenses would be incurred on the special order.
What is the profit earned by Reggie Corporation on the original 1,000 units?

A) $6,900,000
B) $8,400,000
C) $900,000
D) $2,640,000

Question 73

Miller Company produces speakers for home stereo units.The speakers are sold to retail stores for $30.Manufacturing and other costs are as follows: The variable distribution costs are for transportation to the retail stores.The current production and sales volume is 20,000 per year.Capacity is 25,000 units per year.

-
An Atlanta wholesaler has proposed to place a special one-time order for 7,000 units at a special price of $25.20 per unit.The wholesaler would pay all distribution costs, but there would be additional fixed selling and administrative costs of $6,000.In addition, assume that overtime production is not possible and that all other information remains the same as the original data.What is the effect on profits if the special order is accepted?

A) increase of $54,900
B) increase of $30,900
C) increase of $36,900
D) increase of $176,400

Question 74

Reggie Corporation manufactures a single product with the following unit costs for 1,000 units: Recently, a company approached Reggie Corporation about buying 100 units for $5,100 each.Currently, the models are sold to dealers for $7,800.
Assume there is additional capacity for 60 more units and the firm has to reduce regular customer sales by 40 units in order to contract the special order.There are selling expenses on only the sales to the regular customers.What is the net income if the special order of 100 units is accepted?

A) $831,960
B) $876,960
C) $1,011,600
D) $900,000

Question 75

Rose Manufacturing Company had the following unit costs: A one-time customer has offered to buy 2,000 units at a special price of $48 per unit.Assuming that sufficient unused production capacity exists to produce the order and no regular customers will be affected by the order, how much additional profit (loss) will be generated by accepting the special order?

A) $12,000 profit
B) $96,000 profit
C) $84,000 loss
D) $24,000 loss

Question 76

Walton Company manufactures a product with the following costs per unit at the expected production level of 84,000 units: The company has the capacity to produce 90,000 units.The product regularly sells for $120.

-
If a wholesaler offered to buy 4,500 units for $100 each, the effect of the special order on income would be a

A) $153,000 increase.
B) $45,000 increase.
C) $450,000 increase.
D) $90,000 decrease.

Question 77

If a firm is at full capacity, the minimum special order price must cover

A) variable costs associated with the special order.
B) variable and fixed manufacturing costs associated with the special order.
C) variable and incremental fixed costs associated with the special order.
D) variable costs and incremental fixed costs associated with the special order plus foregone contribution margin on regular units not produced.

Question 78

The following information relates to a product produced by Creamer Company: Fixed selling costs are $500,000 per year, and variable selling costs are $12 per unit sold.Although production capacity is 600,000 units per year, the company expects to produce only 400,000 units next year.The product normally sells for $120 each.A customer has offered to buy 60,000 units for $90 each.
If the firm produces the special order, the effect on income would be a

A) $360,000 increase.
B) $360,000 decrease.
C) $540,000 increase.
D) $540,000 decrease.

Question 79

Walton Company manufactures a product with the following costs per unit at the expected production level of 84,000 units: The company has the capacity to produce 90,000 units.The product regularly sells for $120.

-A wholesaler has offered to pay $110 a unit for 7,500 units.
If the special order is accepted, the effect on operating income would be a

A) $75,000 decrease.
B) $429,000 increase.
C) $495,000 increase.
D) $249,000 increase.

Question 80

Gundy Company manufactures a product with the following costs per unit at the expected production of 30,000 units: The company has the capacity to produce 40,000 units.The product regularly sells for $40.A wholesaler has offered to pay $32 a unit for 2,000 units.
If the firm is at capacity and the special order is accepted, the effect on operating income would be

A) a $20,000 increase.
B) a $16,000 decrease.
C) a $4,000 increase.
D) $-0-.