Tunnel Incorporated Provided the Following Information Regarding Its Single Product

question 89

Multiple Choice

Tunnel Incorporated provided the following information regarding its single product: The regular selling price for the product is $80. The annual quantity of units produced and sold is 42,000 units (the costs above relate to the 42,000 units production level) . The company has excess capacity and regular sales will not be affected by this special order. There was no beginning inventory.
What would be the effect on operating income of accepting a special order for 5000 units at a sale price of $56 per product? (Round any intermediary calculations to the nearest cent.)

• A)Increase by $176,450
• B)Increase by $383,550
• C)Decrease by $176,450
• D)Decrease by $383,550

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Definitions:

Budgets

Financial plans that estimate revenue and expenditures over a specific period, helping organizations plan their finances.

Standard Costs

Predetermined costs for materials, labor, and overhead used for budgeting and assessing performance.

Variable Overhead

Costs that vary with the level of production output, such as utilities and commissions.

Materials Price Variance

The difference between the actual cost of materials and the standard cost, multiplied by the actual quantity of materials used.