The Following Information Relates to a Product Produced by Faulkland

question 95

Multiple Choice

The following information relates to a product produced by Faulkland Company:
$$\begin{array} { | l r | } \hline \text { Direct materials } & \$ 10 \\\hline \text { Direct labor } & 7 \\\hline \text { Variable overhead } & 6 \\\hline \text { Fixed overhead } & 8 \\\hline \text { Unit cost } & \$ 31 \\\hline\end{array}$$
Fixed selling costs are $1,000,000 per year.Variable selling costs of $4 per unit sold are added to cover the transportation cost.Although production capacity is 500,000 units per year,Faulkland expects to produce only 400,000 units next year.The product normally sells for $40 each.A customer has offered to buy 60,000 units for $30 each.The customer will pay the transportation charge on the units purchased.If Faulkland accepts the special order,the effect on income would be a:

• A) $60,000 increase.
• B) $180,000 increase.
• C) $420,000 increase.
• D) $600,000 decrease.

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