The Following Information Relates to a Product Produced by Creamer

question 128

Multiple Choice

The following information relates to a product produced by Creamer Company: $\begin{array}{lr}\text { Direct materials } & \$ 24 \\\text { Direct labour } & 15 \\\text { Variable overhead } & 30 \\\text { Fined overhead } & 18 \\\text { Unit cost } & \$ 87\end{array}$ Fixed selling costs are $500,000 per year,and variable selling costs are $12 per unit sold.Although production capacity is 600,000 units per year,the company expects to produce only 400,000 units next year.The product normally sells for $120 each.A customer has offered to buy 60,000 units for $90 each. Suppose the firm produces the special order.What would be the effect on Creamer's annual income?

• A) a $360,000 increase
• B) a $360,000 decrease
• C) a $540,000 increase
• D) a $540,000 decrease

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Definitions:

Confidence Level

The probability that the value of a parameter falls within a specified range of values.

Population Standard Deviation

A measure of the dispersion or spread of all the data points in a population dataset.

Interval Estimate

A range of values derived from sample data that is likely to contain the value of an unknown population parameter.

Sampling Distribution

The probability distribution of a statistic based on all possible random samples that can be drawn from a population.