Markson Company Had the Following Results of Operations for the Past

question 144

Multiple Choice

Markson Company had the following results of operations for the past year: A foreign company offers to buy 2,000 units at $14 per unit. In addition to variable manufacturing and administrative costs, selling these units would increase fixed overhead by $1,600 for the purchase of special tools. Markson's annual productive capacity is 12,000 units. If Markson accepts this additional business, its profits will:

• A) Increase by $3,500.
• B) Decrease by $5,650.
• C) Decrease by $1,600.
• D) Increase by $1,900.
• E) Decrease by $5,100.

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Definitions:

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life, reflecting the decrease in value of the asset over time.

Straight-Line Method

A method of calculating depreciation or amortization by evenly spreading the cost over the useful life of the asset.

Gross Profit Rate

A financial metric that represents the percentage of revenue that exceeds the cost of goods sold.

Perpetual Inventory Method

A system of inventory management where updates are made continuously to account for additions to and subtractions from inventory, showing real-time inventory levels.