Modesto Company Produces CD Players for Home Stereo Units The Variable Distribution Costs Are for Transportation to the Retail

question 85

Multiple Choice

Modesto Company produces CD Players for home stereo units. The CD Players are sold to retail stores for $30. Manufacturing and other costs are as follows: $$\begin{array} { l r l r } \text { Variable costs per unit: } & & { \text { Fixed costs per month: } } \\\text { Direct materials } & \$ 9.00 & \text { Factory overhead } & \$ 120,000 \\\text { Direct labor } & 4.50 & \text { Selling and admin. } & 60,000 \\\text { Factory overhead } & 3.00 & \text { Total } & \$ 180,000 \\\text { Distribution } & 1.50 & & \\\text { Total } & \$ 18.00 & &\end{array}$$ The variable distribution costs are for transportation to the retail stores. The current production and sales volume is 20,000 per year. Capacity is 25,000 units per year.
A San Diego wholesaler has proposed to place a special one-time order of 10,000 units at a reduced price of $24 per unit. The wholesaler would pay all distribution costs, but there would be additional fixed selling and administrative costs of $3,000. All other information remains the same as the original data. What is the effect on profits if the special order is accepted?

• A)increase of $12,000
• B)increase of $57,000
• C)increase of $75,000
• D)decrease of $168,000

---

Definitions:

Government Spending

The total amount of public expenditure by the government on various services and infrastructure, contributing to the nation's economic activity.

Normative

Relating to prescriptive or value-based judgments, indicating what should be rather than what is.

Oil Imports

The purchase of foreign-sourced oil for domestic use, reflecting a country's demand for energy resources not available within its own borders.

Normative Statement

An opinion-based statement that reflects values or judgments and cannot be tested or disproven by observation.