The Following Are the Baby Clothes Company's Unit Costs of Making

question 143

Multiple Choice

The following are the Baby Clothes Company's unit costs of making and selling an item at a volume of 12,000 units per month, which represents the company's capacity: $\begin{array} { | l | r | } \hline \text { Manufacturing: } & \\\hline \text { Direct Materials } & \$ 1.50 \\\hline \text { Direct Labour } & \$ 2.00 \\\hline \text { Variable Overhead } & \$ 0.50 \\\hline \text { Fixed Overhead } & \$ 0.90 \\\hline \text { Selling and Administrative: } & \\\hline \text { Variable } & \$ 2.00 \\\hline \text { Fixed } & \$ 0.60 \\\hline\end{array}$ Present sales amount to 11,000 units per month. An order has been received from a customer in a foreign market for 1,000 units. The order would not affect current sales. Fixed costs, both manufacturing and selling and administrative, are constant within the relevant range between 8,000 and 10,000 units per month. The variable selling and administrative costs would have to be incurred for this special order as well as all other sales. Assume direct labour is a variable cost.


-How much will the company's operating income be increased or (decreased) if it prices the 1,000 units in the special order at $8 each?

• A) ($500).
• B) $400.
• C) $2,000.
• D) $2,500.

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Definitions:

Ambiguous

Being open to more than one interpretation, meaning, or outcome, often resulting in uncertainty or confusion.

Administrative Law

A branch of public law that governs the activities of administrative agencies of government.

Substantive Rules

Laws that govern how people's rights or duties are to be handled, as opposed to procedural rules which dictate how the legal process is conducted.

Government in Sunshine Act

A law that requires certain meetings of governmental agencies to be open to the public.