Hermis, Inc. produces and sells blue pens. Each blue pen has a sale price of $1 and variable costs of $0.50. Fixed costs total $500/month. Hermis currentlysells 2,000 pensper month;capacity is 2,500pens per month. They received a one-time special order tosell an additional 1,000 pensfor a sale price of $0.60 per pen. They will avoid $100 in fixed costs if they accept the special order. Should Hermis accept the special order? (Please note the slight differences in this problem).

• A.Yes, doing so will increase profits by $200
• B.No, doing so will reduce profits by $50
• C.Yes, doing so will increase profits by $100
• D.No, doing so will reduce profits by $150

Sunk costs should:

A.Treated like an opportunity cost and only considered if the differential analysis occurs when production is at capacity.

• B.Be considered in differential analysis if the cost occurred within the last quarter.
• C.Be considered in differential analysis, depending on how large the cost is.
• D.Never be considered in differential analysis

Fryer, Inc. manufactures chips for electronics. Fryer is considering outsourcing part of the chip production process. If they chose to outsource, they can rent part of their plant out for $3,000 a month. This $3,000 of potential rent is a

A.Sunk cost

• B.Opportunity cost
• C.Fixed cost
• D.None of these