The Following Information Relates to Current Production of Outdoor Chaise

question 163

Multiple Choice

The following information relates to current production of outdoor chaise lounges at Backyard Posh:

The regular selling price per chaise lounge is $300.00.The company is analyzing the opportunity to accept a special sales order for 800 chaise lounge at a price of $250.00 per unit.Fixed costs would remain unchanged.The company has the capacity to produce 15,000 chaise lounges per year,but is currently producing and selling 10,000 chaise lounges per year.The 800 units would not require any variable marketing and administrative expenses.Regular sales will not be affected by the special order.If the company were to accept this special order,how would operating income be affected?

• A)Decrease by $94,400
• B)Decrease by $118,400
• C)Increase by $94,400
• D)Increase by $118,400

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Definitions:

Quantity Demanded

The cumulative total of a good or service that customers intend and can afford to buy at a set price level.

Quantity Supplied

The total amount of a product that producers are willing and able to sell at a given price in a given time period.

Surplus

An economic situation where the quantity of goods supplied is greater than the quantity demanded.

Shortage

A situation in an economy where the demand for a product or service exceeds the supply available at a specific price.