Dakota Corporation provided the following information regarding its only product

Question

Dakota Corporation provided the following information regarding its only product: Sales price per unit $60; DM used $160,000; DL incurred $230,000; Variable manufacturing overhead $150,000; variable selling and administrative expenses $60,000; fixed manufacturing overhead $80,000; fixed selling and administrative expenses $10,000; units produced and sold $12,000; assume no beginning inventory. Assuming there is excess capacity, what would be the effect on operating income of accepting a special order for $1,000 units at a sale price of $40 per product? (NOTE: Assume regular sales are not affected by the special order.) a) decrease by $10,000; b) decrease by $15,000; c) increase by $10,000; d) increase by $80,000

Explanation / Answer

Hi, Total Variable Cost = 600000 (DM + DL + Variable Manufacturing OH + Variable Selling and Adminis. OH) Per Unit Variable Cost = 600000/12000 = 50 per unit Sales value for order of 1000 = 1000*40 = 40000 Less Variable Cost = 10000*50 = 50000 LessNet Loss on Additional Order = 40000 - 50000= 10000 (Option A is correct. Income would decrease by 10000.) Thanks, Aman

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.