The Immanuel Company Has Just Obtained a Request for a Special

question 149

Multiple Choice

The Immanuel Company has just obtained a request for a special order of 6,000 jigs to be shipped at the end of the month at a selling price of $7 each. The company has a production capacity of 90,000 jigs per month with total fixed production costs of $144,000. At present, the company is selling 80,000 jigs per month through regular channels at a selling price of $11 each. For these regular sales, the cost for one jig is: If the special order is accepted, Immanuel will not incur any selling expense; however, it will incur shipping costs of $0.30 per unit. Total fixed production cost would not be affected by this order.
-Suppose that regular sales of jigs total 85,000 units per month.All other conditions remain the same.If Immanuel accepts the special order,the change in monthly net operating income will be:

• A)$14,400 increase
• B)$7,200 increase
• C)$3,600 decrease
• D)$5,400 decrease

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Definitions:

Risk-Free Asset

An investment that is considered to have negligible risk of financial loss, typically government bonds of stable countries.

Capital Allocation Line

A line representing the risk-return trade-off of different portfolios, showing the highest expected return for a given level of risk.

Standard Deviation

A measure of the dispersion or variation in a set of values, indicating how much the values differ from the mean of the set.

Complete Portfolio

A portfolio that includes both risky assets and a risk-free asset, optimizing the balance between risk and return.