The Following Information Relates to a Product Produced by Creamer

question 17

Multiple Choice

The following information relates to a product produced by Creamer Company:

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.
If the firm produces the special order, the effect on income would be a

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

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Definitions:

Gross Method

An accounting practice where purchases are recorded at their full invoice amount without taking deductions for discounts.

Purchase Discounts

A reduction in the price paid for goods or services if payment is made within a specified period, used as an incentive for early payment.

Cash

Money in the form of currency, including bills and coins, that can be used to pay for goods and services.

Internal Control

Methods and systems put in place by an organization to guarantee the accuracy of financial and accounting data, encourage responsibility, and deter dishonest practices.