Fox IncManufactures and Sells Pens for $5 Each

question 161

Multiple Choice

Fox Inc.manufactures and sells pens for $5 each.Walton Corp.has offered Fox Inc.$3 per pen for a one-time order of 3,500 pens.The total manufacturing cost per pen,using traditional costing,is $1 per unit,and consists of variable costs of $0.85 per pen and fixed overhead costs of $0.15 per watch.Assume that Fox Inc.has excess capacity and that the special order would not adversely affect regular sales.What is the change in operating income that would result from accepting the special sales order?

• A)increase of $7,000
• B)decrease of $7,000
• C)increase of $7,525
• D)decrease of $7,525

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Definitions:

Retail Price

The selling price of goods or services to the end consumer, typically including costs and markup.

Mark-up on Cost

It is the amount or percentage added to the cost price of goods to cover overhead and profit.

Future Shop

A now-defunct Canadian electronics retailer that was absorbed by Best Buy.

Normal Retail Price

The standard selling price of a good or service in the retail market before any discounts or promotions are applied.