Meco Company Produces a Product That Has a Regular Selling

question 23

Multiple Choice

Meco Company produces a product that has a regular selling price of $360 per unit.At a typical monthly production volume of 2,000 units,the product's average unit cost of goods sold amounts to $270.Included in this average is $120,000 of fixed manufacturing costs.All selling and administrative costs are fixed and amount to $30,000 per month. Meco Company has just received a special order for 1,000 units at $240 per unit.The buyer will pay transportation,and the regular selling price will not be affected if Meco accepts the order.
Assume that Meco Company has excess capacity.Suppose Meco accepts the order.What would be the effect on profits?

• A)a $30,000 increase
• B)a $30,000 decrease
• C)a $60,000 increase
• D)a $60,000 decrease

---

Definitions:

Isocost Line

An isocost line is a graphical representation in economics showing all possible combinations of inputs that result in the same cost of production.

Price of Capital

The cost incurred to use capital goods for production, often determined by interest rates and market demand.

Total Expenditures

The total amount of money spent by a firm or an individual on goods and services.

Price of Labor

The wage rate or compensation paid to employees for their work or services, determined by supply and demand in the labor market.