Franklin has received a special order for 10,000 units of its product at a special price of $15. The product normally sells for $20 and has the following manufacturing costs: Per unit Direct materials - $6 Direct labor - $3 Variable manufacturing overhead - $2 Fixed manufacturing overhead - $6 Unit cost - $17 Franklin is currently operating at full capacity and cannot fill the order without harming normal production and sales. If Franklin accepts the order, what effect will the order have on the company's short-term profit? A) $40,000 decrease B) $40,000 increase C) $50,000 decrease D) $10,000 increase

Franklin has received a special order for 10,000 units of its product at a special price of $15. The product normally sells for $20 and has the following manufacturing costs: Per unit Direct materials - $6 Direct labor - $3 Variable manufacturing overhead - $2 Fixed manufacturing overhead - $6 Unit cost - $17 Franklin is currently operating at full capacity and cannot fill the order without harming normal production and sales. If Franklin accepts the order, what effect will the order have on the company's short-term profit? A) $40,000 decrease B) $40,000 increase C) $50,000 decrease D) $10,000 increase

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter17: Activity Resource Usage Model And Tactical Decision Making

Section: Chapter Questions

Problem 18E: A company is considering a special order for 1,000 units to be priced at 8.90 (the normal price...

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A company is considering a special order for 1,000 units to be priced at 8.90 (the normal price would be 11.50). The order would require specialized materials costing 4.00 per unit. Direct labor and variable factory overhead would cost 2.15 per unit. Fixed factory overhead is 1.20 per unit. However, the company has excess capacity, and acceptance of the order would not raise total fixed factory overhead. The warehouse, however, would have to add capacity costing 1,300. Which of the following is relevant to the special order? a. 11.50 b. 1.20 c. 7.35 d. 8.90
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