Nance Corporation Is About to Introduce a New Product

question 355

Multiple Choice

Nance Corporation is about to introduce a new product. The following costs would be incurred if 40,000 units are produced and sold each year: Nance Corporation uses the absorption costing approach to cost-plus pricing as described in the text.After introducing the product, the company finds that it has excess capacity. A foreign dealer has offered to purchase 5,000 units of the product at a special price of $21 per unit. This sale would not disturb regular business. If the special price is accepted on the 5,000 units, the effect on total net income for the year should be:

• A) $45,000 increase
• B) $30,000 increase
• C) $5,000 increase
• D) $26,250 decrease

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Definitions:

Shipment Contract

This is a type of sales contract where the seller is required to send the goods to the buyer, but the title and risk of loss pass to the buyer upon the seller's delivery to the carrier.

Conforming Goods

Products that meet the specifications and quality standards as outlined in a contract agreement between a buyer and seller.

Destination

A place to which a person or thing is going or being sent.

Agreed-On Remedy

A pre-determined solution or compensation for breach of contract that parties consent to during the formation of a contract.