The Normal Selling Price of Our Product Is $42 Per

question 62

Multiple Choice

The normal selling price of our product is $42 per unit.The costs of production are direct materials,$8; direct labor,$6; variable overhead,$7; and fixed overhead,$4 (based on normal capacity) .The company has received a special order for 10,600 units at a unit sales price of $23.There is ample unused capacity to fill the order and $1 per unit will be incurred for additional freight costs.If the order is accepted,operating income will

• A) increase by $10,600.
• B) decrease by $31,800.
• C) increase by $21,200.
• D) decrease by $21,200.

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Definitions:

Marginal Social Costs

The total cost to society of producing one additional unit of a good or service, including both private costs and any externalities.

Social Welfare

The overall well-being of a society, encompassing economic, social, and environmental dimensions, often considered in policy-making.

Pollution

The entry of pollutants into the natural ecosystem resulting in harmful modifications.

External Benefit

An uncompensated benefit that an individual or firm confers on others; also known as positive externality.