The Following Information Relates to a Product Produced by Malkovich

The following information relates to a product produced by Malkovich Company: $$\begin{array} { l r } \text { Direct materials } & \$ 24 \\\text { Direct labor } & 15 \\\text { Variable overhead } & 30 \\\text { Fixed overhead } & \underline { 18 } \\\text { Unit cost } & \$ 87 \\\hline\end{array}$$ Fixed selling costs are $500,000 per year, and variable selling costs are $12 per unit sold. Although production capacity is 600,000 units per year, the company expects to produce only 400,000 units next year. The product normally sells for $120 each. A customer has offered to buy 60,000 units for $90 each.
If the firm produces the special order, the effect on income would be a

A) $360,000 increase.
B) $360,000 decrease.
C) $540,000 decrease.
D) $540,000 increase.

Correct Answer:

Verified

Unlock this answer now
Get Access to more Verified Answers free of charge

Access For Free