Meco Company Produces a Product That Has a Regular Selling

question 64

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.
Assuming Meco Company is operating at capacity and accepting the order would require an offsetting reduction in regular sales, the effect on profits of accepting the order would be a

• A) £240,000 decrease.
• B) £30,000 increase.
• C) £120,000 decrease.
• D) £150,000 decrease.

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Definitions:

Dividends

Payments made by a corporation to its shareholders, typically from profits.

Dividend Yield

A ratio that shows how much a company pays out in dividends each year relative to its stock price.

Expected Dividend

The prospective dividend payment that an investor anticipates receiving from an investment in a stock based on current and historic yield trends.

Current Stock Price

The current trading price of a specific stock on the stock market.