Wisconsin Company Has a Current Production Capacity Level of 200,000

question 64

Multiple Choice

Wisconsin Company has a current production capacity level of 200,000 units per month.At this level of production,variable costs are $1.00 per unit and fixed costs are $0.50 per unit.Current monthly sales are 164,500 units.Gates Company has contacted Wisconsin Company about purchasing 20,000 units at $2.00 each.Current sales would not be affected by the special order and no additional fixed costs would be incurred on the special order.Variable costs would increase $0.10 per unit with the special order.If the order is accepted,what is Wisconsin Company's increase in operating income?

• A) $8,000
• B) $18,000
• C) $20,000
• D) $24,000

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Definitions:

Unobservable Actions

Actions taken by individuals or entities that cannot be seen or measured directly, often relevant in contexts of performance evaluation or trust.

Moral Hazard

The situation where one party to a transaction can take risks without having to suffer consequences, often because another party bears the cost of those risks.

Mortgage Lender

A financial institution or individual that provides loans to borrowers for the purpose of purchasing real estate, with the property serving as collateral.

Careless Finances

The mismanagement or negligent handling of personal or corporate finances.