Wade Company Is Operating at 75% of Its Manufacturing Capacity

question 3

Multiple Choice

Wade Company is operating at 75% of its manufacturing capacity of 140,000 product units per year. A customer has offered to buy an additional 20,000 units at $32 each and sell them outside the country so as not to compete with Wade. The following data are available: In producing 20,000 additional units, fixed overhead costs would remain at their current level but incremental variable overhead costs of $6 per unit would be incurred. What is the effect on income if Wade accepts this order?

• A) Income will decrease by $4 per unit.
• B) Income will increase by $4 per unit.
• C) Income will increase by $5 per unit.
• D) Income will decrease by $5 per unit.
• E) Income will increase by $11 per unit.

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Definitions:

Tractor-Trailer

A vehicle comprising a towing engine (tractor) and a trailer, used primarily for transporting goods over long distances.

Spring Brake Relay Valve

A spring brake relay valve is a component in air brake systems that controls the application and release of the spring brakes, typically used in heavy-duty vehicles for parking and emergency brakes.

Control Signal

An electrical or electronic signal used to control the behavior of a system or device, directing its operation or response.

Trailer

Any of a number of different types of nonpowered, load-carrying vehicles towed by another vehicle.