Groucho Company Has a Current Production Capacity Level of 200,000

question 146

Multiple Choice

Groucho Company has a current production capacity level of 200,000 units per month. At this level of production, variable costs are $0.80 per unit and fixed costs are $0.50 per unit. Current monthly sales are 184,500 units. Super Company has contacted Groucho Company about purchasing 20,000 units at $2.00 each. Current sales would not be affected by the special order and no additional fixed costs would be incurred on the special order. If Groucho Company decides to accept the special order, Groucho Company's costs will increase by:

• A) $16,000
• B) $24,000
• C) $40,000
• D) $20,000

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Definitions:

Potential Benefits

Possible advantages or improvements that may arise from a particular action, investment, or decision, often evaluated in the planning stages.

AASB 127

The Australian Accounting Standards Board guideline that outlines the accounting and disclosure requirements for investments in associates and joint ventures.

Consolidated Financial Statements

Financial statements that represent the consolidation of a corporation and all its subsidiaries, portraying the financial position and performance of the company as a single entity.

Reporting Entity

A reporting entity is an entity or economic unit for which financial statements are prepared and presented to users.