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Question 1 (10 marks) ACME Lamp Ltd. manufactures lamps. The average cost per lamp is as follows: Direct materials 21.00 Direct labour 13.00 Variable manufacturing
Question 1 (10 marks) ACME Lamp Ltd. manufactures lamps. The average cost per lamp is as follows: Direct materials 21.00 Direct labour 13.00 Variable manufacturing overhead 16.00 Variable selling expenses $ 17.00 Fixed manufacturing overhead 9.50 Fixed selling expenses 7.50 Each lamp regularly sells for $82.00. A special order has been received from a customer for 11,200 lamps at $8.20 below the regular selling price. If this special order is accepted, the direct material cost will be $4.20 greater per lamp than for regular sales. The variable selling expenses listed above (i.e. $17.00) include a $5.10 sales commission that ACME pays its sales employees. ACME would not need to pay that commission on this special order. This order would have no effect on the company's regular sales, and the order could be filled using the company's existing capacity without affecting any other offer. No additional fixed costs would be necessary. Required: If ACME accepts the special order, by how much will operating income change? A) increase by $2,240 B) decrease by $20,160 C) decrease by $104,680 D) increase by $29,120 E) increase by $86,240 F) increase by $96,740 G) decrease by $104,160
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