Gatton, Inc Assuming There Is Excess Capacity, the Effect of Accepting a Only

Gatton, Inc., provided the following information regarding its one and only product-scissors: $$\begin{array} { l l } \text { Fixed manufacturing costs } & \$ 420,000 \\\text { Fixed s elling and administrative costs } & 80,000 \\\text { Fixed manuf acturing costs } & 42,000 \\\text { Fixed s elling and administrative costs } & 80,000 \\\text { Variable manufacturing costs } & 1,030,000 \\\text { Variable selling and administrative costs } & 120,000 \\\text { Selling unit price } & 100 \\\text { Units produced and sold } & 20,000\end{array}$$ Assuming there is excess capacity, the effect of accepting a special order for 1,000 units at a price of $80.00 per scissors will be:

A) net income would decrease by $80,000
B) net income would increase by $22,500
C) net income would increase by $1,000
D) net income would decrease by $200,000

Correct Answer:

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