Tarazzz Company manufactures computers. The following cost information for the m
ID: 2498500 • Letter: T
Question
Tarazzz Company manufactures computers. The following cost information for the manufacture of one computer has been compiled.
Direct materials $48
Direct labor 64
Variable manufacturing overhead 48
*Fixed manufacturing overhead 32
Total cost per unit $192
*The $32 amount reflects the amount of indirect cost allocated to each unit. However, as indicated, the total of these indirect costs is fixed.
Tarazzz has received a special order for 500 computers at a price of $175 per unit. By how much will overall company net income change if the order is accepted?
Company net income will DECREASE by $8,500 if the order is accepted.
Company net income will DECREASE by $7,500 if the order is accepted.
Company net income will INCREASE by $7,500 if the order is accepted.
Company net income will INCREASE by $8,500 if the order is accepted.
Company net income will DECREASE by $8,500 if the order is accepted.
Company net income will DECREASE by $7,500 if the order is accepted.
Company net income will INCREASE by $7,500 if the order is accepted.
Company net income will INCREASE by $8,500 if the order is accepted.
Explanation / Answer
Since fixed cost is constant irrespective of its production, we will only consider the variable cost for the acceptance of the order.
Therefore, the correct answer is option C.
The net income is increase by $7500 if the special order is accepted.
Compute the increase in Net profit if the order is accepted. Particulars Amount($) Direct Materials 48 Direct Labor 64 Variable manufacturing overheads 48 Total variable cost 160 Special order price 175 Increase in profit per unit 15 Number of units 500 Total increase in profit 7500Therefore, the correct answer is option C.
The net income is increase by $7500 if the special order is accepted.
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