Johnson Produces 7,000 Skateboards Each Month, Which It Sells for $60

question 97

Multiple Choice

Johnson produces 7,000 skateboards each month, which it sells for $60 each. Variable costs are $25 per unit, and fixed costs are $95,000 per month. A Canadian company has offered to buy an additional 1,000 skateboards for $30 per unit. Assuming that normal sales volume and fixed costs remain unchanged, filling this special order will cause Johnson's operating income to:

• A) Decrease by $30,000.
• B) Decrease by $6,250.
• C) Decrease by $5,000.
• D) Increase by $5,000.

---

Definitions:

Cost Driver

Any factor which causes a change in the cost of an activity, influencing the costs of business operations directly.

High-low Method

An approach used in cost accounting to estimate fixed and variable costs based on the highest and lowest levels of activity.

Electricity Cost

The amount charged for the consumption of electric power, which can vary based on factors like usage, time of use, and geographical location.

Machine Hours

A measure of production time, calculated by counting the number of hours machines are operating.