1. Company has a capacity to produce 100,000 units in a year. Usually the company produces and sells 80,000 units in any year. The selling price is $20.00; variable production cost is $8.00 per unit and total fixed cost is $400,000. This year company received a request of special order for 15,000 units at a selling price of $15.00 per unit.

1.For each item below decide it is relevant or not relevant.

a. Selling price of $20.00

b. Special order price of $15.00

c. Variable production cost of $8.00

d. Fixed cost of $400,000

1. Should the company accept this special order? Why or why not? show calculations to support your answer.

2. 2. In making business decisions, management ordinarily considers only financial information. TRUE OR FALSE?

3.

3. The process used to identify which financial data changes under alternative courses of action is called incremental analysis. TRUE OR FALSE?

4.

4. 4. Opportunity cost is a cost that cannot be changed by any present or future decision. TRUE OR FALSE?

5.

5. A sell-or-process further decision compares the total revenue to be earned and all costs of producing the product. TRUE OR FALSE?

6.

6. Sunk costs are not relevant in incremental analysis. TRUE OR FALSE?

7. 7. What is net present value?

a. The difference between the present value of net income and the capital investment

b. The difference between the net cash flows and the capital investment

c. The difference between the present value of net cash flows and the capital investment

d. The difference between the net cash flows and the present value of the capital investment

8. 8. To produce one turkey platter, Jax Inc. uses $10 of variable and $1.50 of fixed costs. A Peruvian wholesaler has offered to purchase 2,000 platters at $12 each. Jax will incur special shipping costs of $0.75 per platter if the order is accepted. Jax has sufficient unused capacity to produce the additional platters. What will be the effect on net income if the special order is accepted?

a. $1000 increase

b. $2500 increase

c. $4000 increase

d. $500 decrease