PRO Shops Has a Capacity of 45,000 Units and Is

question 97

Multiple Choice

PRO Shops has a capacity of 45,000 units and is currently producing and selling 40,000 at $25 a unit. The present cost structure, on a per unit basis, is: $$\begin{array} { l r } \text { Direct material } & \$ 10 \\\text { Direct labour } & 5 \\\text { Variable overhead } & 3 \\\text { Fixed overhead } & 4\end{array}$$ An order for 7,000 units has been received from a Japanese company at a price of $20 per unit. If the order is accepted, profit will:

• A) Decrease by $2,000
• B) Increase by $14,000
• C) Increase by $7,000
• D) Not change

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Definitions:

Contra Account

An account used in an accounting system to offset a related account, commonly used to record depreciation, allowances, and discounts.

Normal Balance

The side of an account, either debit or credit, where increases to the account are recorded.

Accrued Expense

Expenses that have been incurred but not yet paid or documented in the financial statements through an accounting process.

Land

A natural resource that denotes the earth's surface not covered by water, as well as the rights to use this surface.