The following information relates to a product produced by Malkovich 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 decrease.
D) $540,000 increase.

Question

The following information relates to a product produced by Malkovich 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 decrease. 
D) $540,000 increase.

Quizplus · Accepted Answer

The Answer of The following information relates to a product produced by Malkovich 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 decrease. 
D) $540,000 increase.

The Following Information Relates to a Product Produced by Malkovich