Wisconsin 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.Gates Company has contracted Wisconsin 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 the order is accepted,what is Wisconsin Company's increase in costs?
A)$18,000
B)$20,000
C)$24,000
D)$40,000

Question

Quizplus · Accepted Answer

To calculate the increase in costs for Wisconsin Company, we need to calculate the additional variable costs incurred for producing the 20,000 units for the special order.

The additional variable costs would be:
$0.90 × 20,000 = $18,000

Since there are no additional fixed costs incurred on this special order, the increase in costs for Wisconsin Company would be equal to the additional variable costs of $18,000. Therefore, the correct answer is A) $18,000.

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