Gundy Company Manufactures a Product with the Following Costs Per

question 150

Multiple Choice

Gundy Company manufactures a product with the following costs per unit at the expected production of 30,000 units: The company has the capacity to produce 30,000 units. The product regularly sells for $40. A wholesaler has offered to pay $32 per unit for 2,000 units.
If the firm chooses to accept the special order and reject some regular sales, the effect on operating income would be

• A) a $20,000 increase.
• B) a $16,000 decrease.
• C) a $4,000 increase.
• D) $-0-.

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Definitions:

Incremental

Pertaining to a small or marginal change, often in cost or quantity, that results from a variation in operations or production level.

After-Tax Cash Flows

The amount of money a business or individual has left after all taxes have been paid, indicating the net income available for spending or reinvestment.

Capital Budgeting

The process of evaluating and selecting long-term investments that are aligned with the firm's strategic goals.

Net Working Capital

The difference between a company's current assets and its current liabilities.