It Costs Dryer Company $26 Per Unit ($18 Variable and $8

question 42

Multiple Choice

It costs Dryer Company $26 per unit ($18 variable and $8 fixed) to produce its product, which normally sells for $38 per unit. A foreign wholesaler offers to purchase 5,000 units at $21 each. Dryer would incur special shipping costs of $2 per unit if the order were accepted. Dryer has sufficient unused capacity to produce the 5,000 units. If the special order is accepted, what will be the effect on net income?

• A) $5,000 decrease
• B) $5,000 increase
• C) $15,000 increase
• D) $90,000 increase

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Definitions:

After-Tax Cost

The actual cost of an investment or loan after taking into account the effects of taxation on its returns or costs.

Semi-Annual Coupon Rate

The interest rate on a bond that pays out interest twice a year.

Corporate Marginal Tax Rate

The tax rate that a corporation pays on its last dollar of taxable income, which can impact corporate investment decisions and strategies.

Marginal Tax Rate

The percentage of tax levied on the last dollar of an income earner's taxable income, reflecting the tax applied to each income level for which the taxpayer is eligible.