Venlite, Inc. produces and sells cosmetic products. Currently, the company is op
ID: 2398955 • Letter: V
Question
Venlite, Inc. produces and sells cosmetic products. Currently, the company is operating at 70% of its capacity. The sales price of its product is $30 per unit, and it incurs a full cost of $25 to produce each unit. Its yearly fixed manufacturing overhead amounts to $20,000. The company has received a one-time order for supplying 5,000 units at $26 per unit. This order can be executed within the excess production capacity and will not involve any additional costs. To make this decision, the management of Venlite should use Select one: O A. absorption costing as the decision is short-term in nature B. variable costing as the decision is short-term in nature O C. variable costing as the decision is long-term in nature D. absorption costing as the decision is long-term in nature E. none of the aboveExplanation / Answer
Option "B"
WHY?
Since the Order is ONE-TIME Order and Production is having a spare capacity by which this order can be produced.
The Overhead Cost will be incured regardless of extra production not taken place or NOT. So it is WISE to Undertake Variable costing as short term Decision.
And Absorbtion costing in real world will be more time consuming and cumberstome.
$26 Per unit will earns extra revenue of ($26-$25) * 5000 =$5,000
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