Peters Company produces a product with the following unit cost.
Fixed selling costs are $600,000 per year and variable selling costs are $1.50 per unit sold.
Production capacity is 500,000 units per year. However, the company expects to produce only 300,000 units next year. The product normally sells for $15 each. A customer has offered to buy 150,000 units for $10 each. The units would be sold in an area outside the market area currently served.
-Total incremental cost associated with the special order is
A) $1,237,500.
B) $1,342,000.
C) $1,387,500.
D) $1,425,000.

Question

Peters Company produces a product with the following unit cost.
  Fixed selling costs are $600,000 per year and variable selling costs are $1.50 per unit sold.
Production capacity is 500,000 units per year. However, the company expects to produce only 300,000 units next year. The product normally sells for $15 each. A customer has offered to buy 150,000 units for $10 each. The units would be sold in an area outside the market area currently served.
-Total incremental cost associated with the special order is
A) $1,237,500. 
B) $1,342,000. 
C) $1,387,500. 
D) $1,425,000.

Quizplus · Accepted Answer

The Answer of Peters Company produces a product with the following unit cost.
  Fixed selling costs are $600,000 per year and variable selling costs are $1.50 per unit sold.
Production capacity is 500,000 units per year. However, the company expects to produce only 300,000 units next year. The product normally sells for $15 each. A customer has offered to buy 150,000 units for $10 each. The units would be sold in an area outside the market area currently served.
-Total incremental cost associated with the special order is
A) $1,237,500. 
B) $1,342,000. 
C) $1,387,500. 
D) $1,425,000.

Peters Company Produces a Product with the Following Unit Cost