The following information relates to a product produced by Faulkland Company:

Direct materials	$	11
Direct labor		8
Variable overhead		7
Fixed overhead		9
Unit cost	$	35

Fixed selling costs are $1,110,000 per year. Variable selling costs of $3 per unit sold are added to cover the transportation cost. Although production capacity is 610,000 units per year, Faulkland expects to produce only 510,000 units next year. The product normally sells for $40 each. A customer has offered to buy 70,000 units for $34 each. The customer will pay the transportation company directly for the transportation charges on the units purchased. If Faulkland accepts the special order, the effect on operating profits would be a:

Multiple Choice

• $350,000 increase.

• $560,000 increase.

• $420,000 decrease.

• $70,000 increase.

The Arthur Company manufactures kitchen utensils. The company is currently producing well below its full capacity. The Benton Company has approached Arthur with an offer to buy 12,000 utensils at $0.75 each. Arthur sells its utensils wholesale for $0.85 each; the average cost per unit is $0.81, of which $0.11 is fixed costs. If Arthur were to accept Benton's offer, what would be the increase in Arthur's operating profits?

Multiple Choice

• $480.

• $600.

• $720.

• $1,200.

Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:

Month	Machine Hours	Electricity Costs
January	2,500	$	19,200
February	2,900	$	22,600
March	1,900	$	14,300
April	3,100	$	24,600
May	3,800	$	29,050
June	3,300	$	23,600
July	4,100	$	25,550
August	3,500	$	23,550
September	2,000	$	17,100
October	3,700	$	27,600
November	4,700	$	32,600
December	4,200	$	28,550

Summary Output
Regression Statistics
Multiple R	0.956
R Square	0.914
Adjusted R2	0.905
Standard Error	1,615.39
Observations	12.00

	Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%
Intercept	4,974.43	1,907.43	2.61	0.03	724.41	9,224.45
Machine Hours	5.76	0.56	10.30	0.00	4.51	7.00

If the controller uses regression analysis to estimate costs, the estimate of the fixed portion of electricity costs is:

Multiple Choice

• Fixed Cost = $1,615.39.

• Fixed Cost = $1,907.43.

• Fixed Cost = $4,974.43.

• Fixed Cost = $5.76.