Elhard Company Produces a Single Product

question 119

Multiple Choice

Elhard Company produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 40,000 units per month is as follows: The normal selling price of the product is $51.10 per unit.
An order has been received from an overseas customer for 2,000 units to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $0.10 less per unit on this order than on normal sales.
Direct labor is a variable cost in this company.

-Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $41.60 per unit.By how much would this special order increase (decrease) the company's net operating income for the month?

• A)$2,000
• B)$25,200
• C)$(8,400)
• D)$(18,800)

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Definitions:

Divisional

A divisional structure in an organization is a form of internal organization where divisions are created to operate semi-autonomously, each focusing on a particular product line, market sector, or geographical area.

Organizational Structure

The system of tasks, workflows, reporting relationships, and communication channels that link together the work of diverse individuals and groups.

Functional Authority

Functional authority is the right granted to individuals based on their expertise in specific areas, allowing them to direct activities within their domain of expertise.

Advisory Authority

The power to give advice and recommendations without having the authority to mandate actions.