Cochran Corporation Has a Plant Capacity of 100 000 Units

question 69

Multiple Choice

Cochran Corporation has a plant capacity of 100 000 units per month.Unit costs at capacity are:
$$\begin{array} { l r } \text { Direct materials } & \$ 4.00 \\\text { Direct labour } & 6.00 \\\text { Variable overhead } & 3.00 \\\text { Fixed overhead } & 1.00 \\\text { Marketing-fixed } & 7.00 \\\text { Marketing/distribution-variable } & 3.60\end{array}$$
Current monthly sales are 95 000 units at $30.00 each.Suzie Inc. ,has contacted Cochran Corporation about purchasing 3000 units at $20.00 each.Current sales would not be affected by the one-time-only special order.What is Cochran's change in operating profits if the one-time-only special order is accepted?

• A)$10 200 increase
• B)$17 200 increase
• C)$33 200 increase
• D)$22 000 increase

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A financial concept that applies option valuation techniques to capital budgeting decisions, considering the flexibility to make future business decisions.

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