Prestige Industries currently manufactures and sells 20,000 power saws per month, although it has the capacity to produce 35,000 units per month. At the 20,000-unit-per-month level of production, the per-unit cost is $45, consisting of $30 in variable costs and $15 in fixed costs. Prestige sells its saws to retail stores for $75 each. Roy Distributors has offered to purchase 5,000 saws per month at a reduced price. Prestige can manufacture these additional units with no change in its present level of fixed manufacturing costs.

6. Refer to the information above. Which of the following is not a relevant factor in Prestige's decision concerning whether to accept the special order from Roy?

Answer

A) The opportunity cost involved in accepting Roy's order.

B) The incremental cost of manufacturing an additional 5,000 saws per month.

C) The $45 average cost per unit to manufacture a power saw.

D) Where and at what price Roy intends to sell the saws.

7. Refer to the information above. Assume that Roy Distributors offers to purchase the additional 5,000 saws at a price of $37 per unit. If Prestige accepts this price, Prestige's monthly gross profit on sales of power saws will:

Answer

A) Increase by $35,000.

B) Increase by $185,000.

C) Decrease by $40,000.

D) Decrease by $240,000.

9. Refer to the information above. Prestige decides to accept the special order for 5,000 units from Roy at a unit sales price that will add $100,000 per month to its operating income. The unit price Prestige is charging Roy is:

Answer

		A) $20.80.
		B) $50.00.
		C) $62.50.
		D) $60.