Hubba Company has a current production capacity level of 200,000 units per month.At this level of production, variable costs are $0.90 per unit and fixed costs are $0.50 per unit.Current monthly sales are 164,500 units.Bubba Company has contacted Hubba 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 Hubba Company decides to accept the special order, Hubba Company's costs will increase by _____.
A)$20,000
B)$24,000
C)$18,000
D)$40,000

Question

Quizplus · Accepted Answer

If Hubba Company decides to accept the special order of 20,000 units at $2.00 each, their total cost will increase by:

Variable cost per unit * number of units = $0.90 * 20,000 = $18,000

No additional fixed costs will be incurred since the company is not operating at full capacity. Therefore, the total cost increase will be $18,000.

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