Noreaster Company Produces a Product That Has a Regular Selling

question 53

Multiple Choice

Noreaster Company produces a product that has a regular selling price of $360 per unit. At a typical monthly production volume of 2,000 units, the product's average unit cost of goods sold amounts to $270. Included in this average is $120,000 of fixed manufacturing costs. All selling and administrative costs are fixed and amount to $30,000 per month.
Noreaster Company has just received a special order for 1,000 units at $240 per unit. The buyer will pay transportation, and the regular selling price will not be affected if Noreaster accepts the order.
Assuming Noreaster Company is operating at capacity and accepting the order would require an offsetting reduction in regular sales, the effect on profits of accepting the order would be a

• A)$240,000 decrease.
• B)$120,000 decrease.
• C)$150,000 decrease.
• D)$30,000 increase.

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Definitions:

Federal Reserve

The central banking system of the United States, responsible for setting monetary policy, regulating banks, maintaining financial stability, and providing financial services to depository institutions, the U.S. government, and foreign official institutions.

Interest Rate

The amount charged by a lender to a borrower for the use of assets, expressed as a percentage of the principal.

Excess Supply

A situation in which the quantity of a good or service supplied is greater than the quantity demanded at the current price, leading to surplus stock.

Money Market

A section of the financial market where short-term financial assets with high liquidity are traded, such as treasury bills and commercial paper.