10:19 The Molis Corporation has the capacity to produce 15,000 haks each month.

Question

10:19

The Molis Corporation has the capacity to produce 15,000 haks each month. Current regular production and sales are 10,000 haks per month at a selling price of $15 each. Based on this level of activity, the following unit costs are incurred: The fixed costs, both manufacturing and administrative, are constant in total within the relevant range of 10,000 to 15,000 haks per month. Direct labor is a variable cost. The Molis Corporation has received a special order from a customer who wants to pay a reduced price of $10 per hak. There would be no selling expense in connection with this special order. And, this order would have no effect on the company's other sales. Suppose the special order is for 4,000 haks this month. If this offer is accepted by Molis, the company's operating income for the month will:

Explanation / Answer

Capacity 15000 Production & Sales 10000 Selling Price 15 Total Cost Direct Material 5 Direct Labour 3 Manufacturing Overheads 0.75 Fixed Overhead 1.5 Variable Selling Overhead 0.25 Fixed Expense 1 Total 11.5 Total Special Order 11 10+1 Profit 0.5 11.5-11 Total profit .5*10000= $ 5000 The correct answer is C. $ 5000

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