Yosemite Company Produces Blu-Ray Players for Home Stereo Units The Variable Distribution Costs Are for Transportation to the Retail

question 109

Multiple Choice

Yosemite Company produces Blu-Ray Players for home stereo units. The Blu-Ray 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.
An Atlanta wholesaler has proposed to place a special one-time order for 7,000 units at a special price of $25.20 per unit. The wholesaler would pay all distribution costs, but there would be additional fixed selling and administrative costs of $6,000. In addition, assume that overtime production is not possible and that 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 $30,900
• B)increase of $54,900
• C)increase of $36,900
• D)increase of $176,400

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Definitions:

Positive Linear Relationship

A relationship between two variables where an increase in one variable is associated with an increase in the other variable, represented as a straight line.

Scatter Diagram

A graphical representation that uses dots to show the relationship between two variables, helping to identify correlations.

Slope

The measure of the steepness or incline of a line, typically described as the ratio of the vertical change to the horizontal change between two points on the line.

Positive Linear Relationship

A direct correlation between two variables in which they both increase or decrease together at a constant rate, as depicted by a positively sloped line on a graph.