Figure 17-2 Walton Company Manufactures a Product with the Following

question 89

Multiple Choice

Figure 17-2 Walton Company manufactures a product with the following costs per unit at the expected production level of 84,000 units:
The company has the capacity to produce 90,000 units.The product regularly sells for $120.
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Refer to Figure 17-2.A wholesaler has offered to pay $110 a unit for 7,500 units.
If the special order is accepted, the effect on operating income would be a

• A) $75,000 decrease.
• B) $429,000 increase.
• C) $495,000 increase.
• D) $249,000 increase.

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Definitions:

Product Costs

Expenses directly associated with the creation of a product, including direct materials, direct labor, and manufacturing overhead.

Period Costs

Expenses that are not directly tied to production activity and are expensed in the period in which they occur.

Prepaids Insurance

Expenses paid in advance for insurance coverage, recognized as assets until the coverage period lapses.

Fixed Manufacturing

Costs that do not vary with the volume of production, including rent, salaries of permanent staff, and equipment depreciation.