Nebraska Company Uses Activity-Based Costing A Total of 500 Setups at a Cost of $120

Nebraska Company uses activity-based costing.The company produces and sells 20,000 units at $20 per unit.Nebraska Company's product cost is calculated as follows:
$$\begin{array} { l l } \text { Variable costs } & \$ 8 \text { per unit } \\\text { Fixed costs } & \$ 2 \text { per unit } \\\text { Setup costs } & \$ 3 \text { per unit } \\\text { Total costs } & \$ 13 \text { per unit }\end{array}$$
A total of 500 setups at a cost of $120 per setup are required to produce the 20,000 units.Nebraska Company has received a special order to sell 5,000 units at $11 per unit.Nebraska Company has excess capacity available,but these 5,000 units would require 60 setups.If Nebraska Company accepts the special order,what is Nebraska's increase in net income?

A) increase $5,000
B) increase $7,800
C) decrease $2,800
D) decrease $5,000

Correct Answer:

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