Snapper Tool Company Has a Production Capacity of 3,000 Units

question 159

Multiple Choice

Snapper Tool Company has a production capacity of 3,000 units per month, but current production is only 2,500 units.Total manufacturing costs are $60 per unit and marketing costs are $16 per unit.Doug Levy offers to purchase 500 units at $76 each for the next five months.Should Snapper accept the one-time-only special order if only absorption-costing data are available?

• A)Yes, good customer relations are essential.
• B)No, the company will only break even.
• C)No, since only the employees will benefit.
• D)Yes, since operating profits will most likely increase.
• E)Yes, because breaking even is better than having idle capacity.

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Definitions:

T-bill

Treasury bill, a short-term government security with a maturity of less than one year, used to finance the national debt.

Simple Interest

The calculation of interest paid or received over a certain period that is based only on the principal amount, not including interest on interest.

Promissory Note

A financial instrument containing a written promise by one party to pay another a definite sum of money either on demand or at a specified future date.

Treasury Bill

A short-term government debt instrument issued at a discount from the face value and pays no interest before maturity.