Question

Krazy Inc manufactures industrial components. One of its products, Double Krazy, has the following production data:

Per Unit

Selling price $180

Direct materials $29

Direct labor $5

Variable manufacturing overhead $4

Fixed manufacturing overhead $21

Variable selling expense $2

Fixed selling and administrative expense $17

The above per unit data are based on annual production of 4,000 units of Double Krazy.

16. The company has received a special, one-time-only order for 500 units. There would be no variable selling expense on this special order and the total fixed manufacturing overhead and fixed selling and administrative expenses of the company would not be affected by the order. Assuming that Krazy has excess capacity and can fill the order without cutting back on the production of any product, what is the minimum price per unit on the special order below which the company should not go?

A) $78

B) $180

C) $38

D) $59

17. The company has received a special, one-time-only order for 500 units to be sold at $65. There would be no variable selling expense on this special order and the total fixed manufacturing overhead and fixed selling and administrative expenses of the company would not be affected by the order. However, there are modifications that will have to be done to the product that will increase variable costs by $2.50 and a special machine will have to be purchased for $5,000 that will not have a salvage value or use after this order. If the special order is accepted, the company's overall net operating income will increase (decrease) by:

A) ($11,500)

B) ($2,000)

C) $7,250

D) $12,250

Answer 1