A Company Is Currently Operating at 80% Capacity Producing 5,000

question 72

Multiple Choice

A company is currently operating at 80% capacity producing 5,000 units.Current cost information relating to this production is shown in the table below: $$\begin{array} { | l | c | } \hline & \text { Per Urit } \\\hline \text { Sales price } & \$ 34 \\\hline \text { Direct rraterial } & \$ 2 \\\hline \text { Direct labor } & \mathbf { \$ 3 } \\\hline \begin{array} { l } \text { Variable } \\\text { overhead }\end{array} & \$ 4 \\\hline \text { Fixed overhead } & \mathbf { \$ 5 } \\\hline\end{array}$$ The company has been approached by a customer with a request for a 100-unit special order.What is the minimum per unit sales price that management would accept for this order if the company wishes to increase current profits?

• A)Any amount over $34 per unit.
• B)Any amount over $20 per unit.
• C)Any amount over $14 per unit.
• D)Any amount over $9 per unit.
• E)Any amount over $5 per unit.

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Definitions:

Costing System

A method used by businesses to track, record, and analyze costs associated with their products or services to ensure profitability.

Process Costing Method

An accounting methodology used to allocate production costs to products based on the process they undergo, typically in industries where goods are produced in a continuous fashion.

Equivalent Units

A concept used in cost accounting to express the amount of materials, labor, or overhead costs in terms of fully completed units of production.

Costs Per Equivalent Unit

The calculation of the cost to produce one standard unit of production, considering work done to date.