Homework Answers
1. Answer C. $26,250 increase
Total order 750 * 60 = 45000
Total cost = 20 + 5 = 25 * 750 = 18750
Operating income = Total revenue - direct cost - indirect cost
= 45000 - 18750 = 26250
Note: the wages of the labor will be paid whether or not the special order is accepted.
2. Answer B. Yes, income increase by $30,000
Total order 6000 * 15 = 90,000
Total cost = 6 + 2 + 2 = 10 * 6000 = 60,000
so income = revenue - cost
= 90,000 - 60,000 = 30,000
Note: No fixed costs are avoidable
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