Meals.com, Inc., which produces and ships frozen meals, has the plant capacity to produce 10,000 units annually. Its predicted operations for the year follow:
Sales (8,000 units at $10 each) ........................................................................ $80,000
Manufacturing Costs
Variable ...................................................................................................... $4 per Unit
Fixed ................................................................................................................ $10,000
Marketing and Administrative Costs
Variable ...................................................................................................... $2 per Unit
Fixed .................................................................................................................. $8,000
Meals.com is considering a special order of 1,000 units from a prospective customer willing to pay $8 per unit. Assume this order will have no effect on regular sales at regular prices, on total fixed costs, or on variable costs per unit.
a. The effect of the special order on sales will be an increase of
(1) $10,000.
(2) $72,000.
(3) $80,000.
(4) $8,000.
(5) Some other amount.
b. The effect of the special order on total variable costs will be an increase of
(1) $8,000.
(2) $6,000.
(3) $5,000.
(4) $4,000.
(5) Some other amount.
c. The effect of the special order on total fixed costs will be an increase of
(1) $0.
(2) $2,250.
(3) $8,000.
(4) $1,250.
(5) Some other amount.
d. The effect of the special order on fixed costs per unit will be
(1) Zero.
(2) An increase of $2.25.
(3) A decrease of $2.25.
(4) A decrease of some other amount.
(5) An increase of some other amount.
e. How will the special order affect operating profit?
(1) Increase it.
(2) Decrease it.
(3) Have no effect.