17). Itcosts Kit Kat Company $12 of variable and $5 of fixed costs to produce on

Question

17). Itcosts Kit Kat Company $12 of variable and $5 of fixed costs to produce one bathroom scale which normally sells for $35. A foreign wholesaler offers to purchase 2,000 scales at $15 each. Kit Kat would incur special shipping costs of $1 per scale ifthe order were accepted. Kit Kat has sufficient unused (excess) capacity to produce the 2,000 scales. Ifthe special order is accepted, what will be the effect on net income?

A) $4,000 increase

B) $4,000 decrease

C) $6,000 decrease

D) $30,000 increase

18). Bow-wow Company manufactures a product with a unit variable cost of $50 and a unit sales price of $88. Fixed manufacturing costs were $240,000 when 10,000 units were produced and sold. The company has a one-time opportunity to sell an additional 1,000 units at $70 each in a foreign market which would not affect its present sales. Ifthe company has sufficient (excess) capacity to produce the additional units, acceptance of the special order would affect net income as follows:

A). Income would decrease by $4,000.

B). Income would increase by $4,000.

C). Income would increase by $70,000.

D). Income would increase by $20,000.

Explanation / Answer

17) Effect of special order :

So answer is a) $4000 Increase

18) Effect on net income ;

So answer is d) Income would increase by $20000

Revenue (2000*15) 30000 Variable cost (2000*12) 24000 Shipping cost (2000*1) 2000 Net operating income 4000

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