Question

Fixed selling costs are $1,000,000 per year. Variable selling costs of $4 per unit sold are added to cover the transportation cost. Although production capacity is 500,000 units per year, Faulkland expects to produce only 400,000 units next year. The product normally sells for $40 each. A customer has offered to buy 60,000 units for $30 each. The customer will pay the transportation company directly for the transportation charges on the units purchased. If Faulkland accepts the special order, the effect on operating profits would be a:A. $231,000 increase.

B. $462,000 increase.
C. $77,000 increase.
D. $693,000 decrease.

Answer 1

Answer: A. 462000 increase

As the question is not complete, So I have solved the question according to the correct question which is attached in the attachment.

Step-by-step explanation:

Correct question is attached in the attachment.

Calculation: 26 – (9+6+5) = 6

Now, 6*77000 = 462000

The income is Revenue minus cost, so here the price per unit is $26 and cost includes direct material, direct labor cost, and overhead.

The income is calculated by subtracting $20 (9+6+5) from $26 which equal to $6.

The total increase in income would be $462000.

Since, the customer is paying for variable charges per unit, so we don’t need to add the transportation charges.