Groucho Company Has a Current Production Capacity Level of 200,000

Groucho Company has a current production capacity level of 200,000 units per month. At this level of production, variable costs are $0.80 per unit and fixed costs are $0.50 per unit. Current monthly sales are 184,500 units. Super Company has contacted Groucho Company about purchasing 20,000 units at $2.00 each. Current sales would not be affected by the special order and no additional fixed costs would be incurred on the special order. If Groucho Company decides to accept the special order, Groucho Company's costs will increase by:

A) $16,000
B) $24,000
C) $40,000
D) $20,000

Correct Answer:

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