Wannabee Company Manufactures a Product with the Following Costs Per

question 32

Multiple Choice

Wannabee Company manufactures a product with the following costs per unit at the expected production level of 84,000 units: $$\begin{array} { l r } \text { Direct materials } & \$ 12 \\\text { Direct labor } & 36 \\\text { Variable manufacturing overhead } & 18 \\\text { Fixed manufacturing overhead } & 24\end{array}$$ The company has the capacity to produce 90,000 units. The product regularly sells for $120. A wholesaler has offered to pay $110 a unit for 7,500 units.
If the special order is accepted, the effect on operating income would be a

• A)$249,000 increase.
• B)$429,000 increase.
• C)$495,000 increase.
• D)$75,000 decrease.

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Definitions:

Banker's Acceptance

A short-term financial instrument issued by a company that is guaranteed by a commercial bank, commonly used in international trade.

Inventory Period

The average time it takes for inventory to be sold and replaced during a given period.

Cash Disbursement

The payment of cash from a business or individual to settle obligations.

Cash Collection

The process of receiving and processing payments from customers or clients for goods or services rendered.