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:

Americas

A geographic region that includes the continental masses of North and South America, including the Caribbean and other islands.

Wild Foods

Naturally occurring plants and animals that can be harvested or hunted for consumption without being cultivated.

Hunting

The activity of pursuing and killing wild animals for food, sport, or management of populations.

Food Gathering

The act of collecting or harvesting natural resources for sustenance, typically involving hunting, fishing, and foraging.