The following information relates to a product produced by Malkovich Company: $$\begin{array} { l r }
\text { Direct materials } & \$ 24 \
\text { Direct labor } & 15 \
\text { Variable overhead } & 30 \
\text { Fixed overhead } & \underline { 18 } \
\text { Unit cost } & \$ 87 \
\hline
\end{array}$$ 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 decrease.
D)$540,000 increase.

Question

The following information relates to a product produced by Malkovich Company: $$\begin{array} { l r } 
\text { Direct materials } & \$ 24 \
\text { Direct labor } & 15 \
\text { Variable overhead } & 30 \
\text { Fixed overhead } & \underline { 18 } \
\text { Unit cost } & \$ 87 \
\hline
\end{array}$$ 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 decrease.
D)$540,000 increase.

Quizplus · Accepted Answer

The Answer of The following information relates to a product produced by Malkovich Company: $$\begin{array} { l r } 
\text { Direct materials } & \$ 24 \
\text { Direct labor } & 15 \
\text { Variable overhead } & 30 \
\text { Fixed overhead } & \underline { 18 } \
\text { Unit cost } & \$ 87 \
\hline
\end{array}$$ 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 decrease.
D)$540,000 increase.

The Following Information Relates to a Product Produced by Malkovich