Anderson Co If Anderson Accepts the Order,$8 of Fixed Overhead Per Unit

question 60

Multiple Choice

Anderson Co.makes and uses 5,000 components each year in its manufacturing operations.An outside supplier has offered to supply the components to Anderson at $66 per unit.Anderson's production costs are as follows: $\begin{array}{ll}\text { Direct materials } & \$ 8 \\\text { Direct labor } & 32 \\\text { Variable overhead } & 12 \\\text { Fixed overhead (based on normal capacity) } & 34\end{array}$
If Anderson accepts the order,$8 of fixed overhead per unit will be eliminated.
If the offer is accepted,operating income will

• A) increase by $100,000.
• B) decrease by $70,000.
• C) decrease by $30,000.
• D) increase by $60,000.

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Definitions:

Contractual Capacity

The legal ability of an individual or entity to enter into binding contracts, requiring understanding and agreement to the contract's terms.

Principals

Individuals or entities that engage an agent to act on their behalf in transactions or negotiations.

Agency Relationship

A legal arrangement in which one party, the agent, is authorized to act on behalf of another, the principal, in business transactions.

Liable

Bound by law or duty.