Figure 13-1. Fuller Company Makes Frames. a Customer Wants to Place a Place

question 45

Multiple Choice

Figure 13-1.
Fuller Company makes frames. A customer wants to place a special order for 600 frames in green with the company logo painted on the frame, to be priced at $40 each. Normally, Fuller would charge $90 per frame for this type of order. Fuller figures that wood and glass will cost $16 per frame, variable overhead (machining, electricity) is $4 per frame, direct labor is $12 per frame, and one setup will be required at $1,000 per setup. The set-up charge costs are 100% labor. Currently, the workers needed to set up for and make the frames are working at Fuller. Their wages will be paid whether or not the special order is accepted. Fuller's policy is to avoid layoffs to the extent possible.
-Refer to Figure 13-1. If Fuller accepts the special order, by how much will operating income increase or decrease?

• A) $14,400 increase
• B) $12,000 decrease
• C) $12,000 increase
• D) $21,600 increase
• E) There will be no effect on operating income.

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Definitions:

Financing Activities

This refers to transactions and events where cash flows into or out of a company to finance its operations and expansions, such as issuing equity or raising debt.

Company's Own Stock

Shares that were issued and subsequently reacquired by the issuing company, held in the company's treasury and available for various corporate uses.

Indirect Method

A way of preparing the cash flow statement where net income is adjusted for non-cash transactions and changes in working capital.

Income Taxes Paid

Refers to the actual amount of money an individual or corporation pays to the government in taxes based on income levels for a specific period.