Dakota Company has been producing and selling 42,000 hats a year.The Dakota Corporation has the capacity to produce 52,000 hats.The following data is available: If a special order is accepted for 10,000 hats at a price of $25 per unit,net income would ________.
A)increase $90,000
B)increase $50,000
C)increase $120,000
D)decrease $24,000

Question

Dakota Company has been producing and selling 42,000 hats a year.The Dakota Corporation has the capacity to produce 52,000 hats.The following data is available:   If a special order is accepted for 10,000 hats at a price of $25 per unit,net income would ________.
A)increase $90,000 
B)increase $50,000 
C)increase $120,000 
D)decrease $24,000

Quizplus · Accepted Answer

The company is currently producing and selling 42,000 hats a year, but has the capacity to produce 52,000 hats a year. This means that the company has the capacity to produce an additional 10,000 hats.

If a special order is accepted for 10,000 hats at a price of $25 per unit, the additional revenue generated would be: 
10,000 hats x $25 per hat = $250,000

The additional cost of production for the 10,000 hats would be: 
None given, so we can assume that the company can produce these hats without incurring any additional costs.

Therefore, accepting the special order would increase the company's net income by $250,000. However, since the company is already operating at full capacity, it may be unable to meet this additional demand without incurring additional costs. Since no information is given about these costs, we cannot determine the exact increase in net income. Therefore, the best choice is B, which states that net income would increase by $50,000.

Dakota Company Has Been Producing and Selling 42,000 Hats a Year.The