The David Corp

question 115

Multiple Choice

The David Corp. makes and sells 50,000 suitcases each year. The total fixed costs are $1,000,000. It has variable labor costs of $25 per unit; direct materials costs of $40 per unit; and variable overhead costs of $15 per unit. Its normal selling price is $120 per item. Assuming it does not have a capacity problem, what would be the effect on profits of accepting a special order of 10,000 suitcases, at a price of $90 per suitcase?

• A) Profits would decrease by $100,000
• B) Profits would increase by $100,000
• C) Profits would increase by $250,000
• D) Profits would decrease by $250,000

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Definitions:

Ascaris

A genus of parasitic nematode worms which can cause the infection ascariasis in humans through ingestion of eggs from contaminated sources.

Roundworm

Invertebrates with nonsegmented cylindrical body covered by a cuticle that molts; some forms are free-living in water and soil, and many are parasitic.

Freshwater Hydra

A small, tentacled, aquatic organism found in freshwater, known for its extraordinary ability to regenerate.

Medusa

Among cnidarians, bell-shaped body form that is directed downward and contains much mesoglea.