Termus Industries Is Operating at 85% of Its Manufacturing Capacity

question 125

Multiple Choice

Termus Industries is operating at 85% of its manufacturing capacity of 50,000 product units per year.A customer has offered to buy an additional 4,000 units at $25 each and sell them outside the country so as not to compete with Termus.The following data are available:
$$\begin{array} { l r r } \text { Costs at 85\%/ capacity: } &{ \text { Per } } & \\& \text { Unit } & \text { Total } \\\text { Direct materials } & \$ 10.00 & \$ 425,000 \\\text { Direct labor } & 8.00 & 340,000 \\\text { Overhead (fixed ard variable) } & 13.00 & 552,500 \\\text { Totals } & \$ 31.00 & \$ 1,317,500\end{array}$$
In producing 4,000 additional units,fixed overhead costs would remain at their current level but incremental variable overhead costs of $4 per unit would be incurred.What is the effect on income if Termus accepts this order?

• A) Income will decrease by $6 per unit.
• B) Income will increase by $6 per unit.
• C) Income will increase by $7 per unit.
• D) Income will decrease by $3 per unit.
• E) Income will increase by $3 per unit.

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Definitions:

Usury Law

Regulations governing the amount of interest that can be charged on a loan, intended to protect borrowers from exorbitant rates.

Interest Rate

The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets.

Usury Laws

Legal statutes regulating the maximum interest rates that can be charged on loans, aimed at preventing predatory lending practices.

Interest Rates

The proportion of a loan charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.