Question
(TCO 5) The MNK Company has gathered the following information for a unit of its most popular product: Direct materials $6 Direct labor $3 Overhead
(TCO 5) The MNK Company has gathered the following information for a unit of its most popular product:
Direct materials
$6
Direct labor
$3
Overhead (40% variable)
$5
Cost to manufacture
$14
Desired markup (50%)
$7
Target selling price
$21
The above cost information is based on 4,000 units. A foreign distributor has offered to buy 1,000 units at a price of $16 per unit. This special order would not disturb regular sales. Variable shipping and other selling expenses would be an additional $1 per unit for the special order. If the special order is accepted, MNK's operating profits will increase by:
A. $1,000.
B. $2,000.
C. $4,000.
D. $5,000.
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