If Pluton selects the cost allocation method indicated by your answer to Q7-7, how much will profits increase on this order compared with the present system?
A)No change
B)Change by $31,666.67
C)Change by $17,571.43
D)Change by $6,380.95
E)None of the above

Question

Quizplus · Accepted Answer

The correct answer is B. If Pluton selects the cost allocation method indicated by the answer to Q7-7, profits will increase by $31,666.67 on this order compared with the present system. This is because the new cost allocation method will allocate more costs to the order, which will result in a higher cost of goods sold and a lower gross profit. However, the new cost allocation method will also result in a higher selling price for the order, which will result in a higher net profit. The net effect of these two changes will be an increase in profits of $31,666.67.

If Pluton Selects the Cost Allocation Method Indicated by Your