Baden Company Manufactures a Product with a Unit Variable Cost

question 29

Multiple Choice

Baden Company manufactures a product with a unit variable cost of $100 and a unit sales price of $176. Fixed manufacturing costs were $480,000 when 10,000 units were produced and sold. The company has a one-time opportunity to sell an additional 1,000 units at $140 each in a foreign market which would not affect its present sales. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows:

• A) Income would decrease by $8,000.
• B) Income would increase by $8,000.
• C) Income would increase by $140,000.
• D) Income would increase by $40,000.

---

Definitions:

Current Liability

A company's debts or obligations that are due within one year or within the normal operating cycle, whichever is longer.

Operating Cycle

The duration it takes for a company to buy inventory, sell products, and collect cash from sales, showing the efficiency of its operations.

Interest-Bearing Note

A debt instrument that pays interest to the holder, usually at a fixed rate, until the principal is repaid.

Face Value

The nominal or original value printed on a financial instrument, such as a bond or stock certificate.