Dakota Company has been producing and selling 42,000 hats a year.There are no beginning and ending inventories.The Dakota Corporation has the capacity to produce 52,000 hats.The following data is available:
$\begin{array} { l }
\text { Selling price per unit}& \$30\
\text { Variable manufacturing costs per unit}& \$13\
\text {Variable selling and administrative costs per unit }& \$7\
\end{array}$

$\begin{array} { l }
\text {Total fixed manufacturing costs }&\$126,000 \
\text { Total fixed selling and administrative costs }& \$84,000\
\end{array}$

If a special order is accepted for 10,000 hats at a price of $25 per unit,net income would ________.
A) increase by $20,000
B) increase by $50,000
C) increase by $90,000
D) decrease by $24,000

Question

Dakota Company has been producing and selling 42,000 hats a year.There are no beginning and ending inventories.The Dakota Corporation has the capacity to produce 52,000 hats.The following data is available:
$\begin{array} { l  }
 \text { Selling price per unit}& \$30\
 \text { Variable manufacturing costs per unit}& \$13\
 \text {Variable selling and administrative costs per unit }& \$7\
\end{array}$

$\begin{array} { l  }
 \text {Total fixed manufacturing costs }&\$126,000 \
 \text { Total fixed selling and administrative costs }& \$84,000\
\end{array}$

If a special order is accepted for 10,000 hats at a price of $25 per unit,net income would ________.
A) increase by $20,000
B) increase by $50,000
C) increase by $90,000
D) decrease by $24,000

Quizplus · Accepted Answer

The net income would increase by $50,000. This is calculated by taking the special order price per unit ($25) and subtracting the variable costs per unit ($13 for manufacturing and $7 for selling and administrative), which equals $5 of profit per unit. For 10,000 units, this results in a $50,000 increase ($5 * 10,000 = $50,000). Fixed costs are not affected by the special order since they remain constant regardless of the number of units produced up to the capacity limit.

Dakota Company Has Been Producing and Selling 42,000 Hats a Year.There