The Following Information Relates to a Product Produced by Faulkland

question 46

Multiple Choice

The following information relates to a product produced by Faulkland Company:
$$\begin{array} { l r } \text { Direct materials } & \$ 10 \\\text { Direct labor } & 7 \\\text { Variable overhead } & 6 \\\text { Fixed overhead } &\underline{ 8} \\\text { Unit cost } & \underline{\$ 31} \\\end{array}$$
Fixed selling costs are $1,000,000 per year. Variable selling costs of $4 per unit sold are added to cover the transportation cost. Although production capacity is 500,000 units per year, Faulkland expects to produce only 400,000 units next year. The product normally sells for $40 each. A customer has offered to buy 60,000 units for $30 each. The customer will pay the transportation company directly for the transportation charges on the units purchased. If Faulkland accepts the special order, the effect on operating profits would be a:

• A) $60,000 increase.
• B) $180,000 increase.
• C) $420,000 increase.
• D) $600,000 decrease.

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Definitions:

Defensive

Behaving in a manner aimed at protecting oneself from criticism, challenge, or accusation.

Think

The process of using one's mind to consider or reason about something.

Speak

To utter words or articulate sounds with the ordinary voice; to express thoughts, opinions, or information verbally.

Encourage

To support, inspire, or motivate individuals or groups to take action or to continue with an activity.