It Costs Garner Company $12 of Variable and $5 of Fixed

question 67

Multiple Choice

It costs Garner Company $12 of variable and $5 of fixed costs to produce one bathroom scale which normally sells for $35. A foreign wholesaler offers to purchase 3,000 scales at $15 each. Garner would incur special shipping costs of $1 per scale if the order were accepted. Garner has sufficient unused capacity to produce the 3,000 scales. If the special order is accepted, what will be the effect on net income?

• A) $6,000 increase
• B) $6,000 decrease
• C) $9,000 decrease
• D) $45,000 increase

---

Definitions:

Risk Premium

The extra return expected by an investor for holding a risky asset instead of a risk-free asset.

Expected Return

The average return an investor anticipates on an investment which is uncertain, based on the probable returns.

States of Economy

The various conditions that can describe an economy, including growth, recession, depression, and recovery.