Reference: 09-01
the Following Are Wyeth Company's Unit Costs of Making

question 29

Multiple Choice

Reference: 09-01
The following are Wyeth Company's unit costs of making and selling an item at a volume of 10,000 units per month (which represents the company's capacity) : $$\begin{array} { | l | c | } \hline \text { Manufacturing: } & \\\hline \text { Direct materials } & \$ 1.00 \\\hline \text { Direct labour } & 2.00 \\\hline \text { Variable overhead } & 0.50 \\\hline \text { Fixed overhead } & 0.90 \\\hline \text { Selling and administrative: } & \\\hline \text { Variable } & 1.50 \\\hline \text { Fixed } & 0.60 \\\hline\end{array}$$ Present sales amount to 9,000 units per month. An order has been received from a customer in a foreign market for 1,000 units. The order would not affect current sales. Fixed costs, both manufacturing and selling and administrative, are constant within the relevant range between 8,000 and 10,000 units per month. The variable selling and administrative costs would have to be incurred for this special order as well as all other sales.
Assume direct labour is a variable cost.
-How much will the company's net operating income be increased or (decreased) if it prices the 1,000 units in the special order at $6 each?

• A)($500)per month.
• B)$1,000 per month.
• C)$400 per month.
• D)$2,500 per month.

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