Suppose Melrose can sell 68,000 units of Product C to regular customers next year. If Moore Corporation offers to buy the special order units at $90 per unit, the effect of accepting the special order for 7,000 units on Melrose's net operating income for next year will be a: $58,500 increase $83,000 increase $93,500 increase $273,000 increase а. b. С. d.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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The Melrose Corporation produces a single product, Product C. Melrose has the
capacity to produce 70,000 units of Product C each year. If Melrose produces at
capacity, the per unit costs to produce and sell one unit of Product C are as follows:
Direct materials.
Direct labor...
Variable manufacturing overhead.
Fixed manufacturing overhead.
Variable selling expense.
Fixed selling expense..
$20
$17
$13
$14
$12
$8
The regular selling price of one unit of Product C is $100. A special order has been
received by Melrose from Moore Corporation to purchase 7,000 units of Product C
during the upcoming year. If this special order is accepted, the variable selling
expense will be reduced by 75%. Total fixed manufacturing overhead and fixed selling
expenses would be unaffected except that Melrose will need to purchase a specialized
machine to engrave the Moore name on each unit of product C in the special order.
The machine will cost $10,500 and will have no use after the special order is filled.
Assume that direct labor is a variable cost.
Suppose Melrose can sell 68,000 units of Product C to regular customers next year. If
Moore Corporation offers to buy the special order units at $90 per unit, the effect of
accepting the special order for 7,000 units on Melrose's net operating income for next
year will be a:
а.
b.
$58,500 increase
$83,000 increase
$93,500 increase
$273,000 increase
С.
d.
Transcribed Image Text:The Melrose Corporation produces a single product, Product C. Melrose has the capacity to produce 70,000 units of Product C each year. If Melrose produces at capacity, the per unit costs to produce and sell one unit of Product C are as follows: Direct materials. Direct labor... Variable manufacturing overhead. Fixed manufacturing overhead. Variable selling expense. Fixed selling expense.. $20 $17 $13 $14 $12 $8 The regular selling price of one unit of Product C is $100. A special order has been received by Melrose from Moore Corporation to purchase 7,000 units of Product C during the upcoming year. If this special order is accepted, the variable selling expense will be reduced by 75%. Total fixed manufacturing overhead and fixed selling expenses would be unaffected except that Melrose will need to purchase a specialized machine to engrave the Moore name on each unit of product C in the special order. The machine will cost $10,500 and will have no use after the special order is filled. Assume that direct labor is a variable cost. Suppose Melrose can sell 68,000 units of Product C to regular customers next year. If Moore Corporation offers to buy the special order units at $90 per unit, the effect of accepting the special order for 7,000 units on Melrose's net operating income for next year will be a: а. b. $58,500 increase $83,000 increase $93,500 increase $273,000 increase С. d.
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