Question
Missoula Industries manufactures a product with the following costs per unit at the expected production of 30,000 units: Direct materials $ 5 Direct labor 15
Missoula Industries manufactures a product with the following costs per unit at the expected production of 30,000 units:
Direct materials | $ 5 |
Direct labor | 15 |
Variable manufacturing overhead | 8 |
The company has the capacity to produce 60,000 units. The product regularly sells for $45. A wholesaler has offered to pay $40 each for 1,000 units. If Missoula is at full capacity and the special order of 1,000 units is accepted, per unit costs would remain the same but total revenue would change by the difference between what can be made in the market and the special offer. The effect under this scenario on operating income would be a
$24,000 increase
$5,000 decrease
$34,000 increase
$10,000 decrease
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