Kansas Company uses activity-based costing. The company produces and sells 20,00

Question

Kansas Company uses activity-based costing. The company produces and sells 20,000 units at $22 oer unit Kansas Company's product cost is calculated as follows: $10 per unit $2 per unit Vanable costs Fixed costs Setup costs Total costs $15 per unit A total of 500 setups at a cost of $120 per setup are required to produce the 20,000 units. Kansas Company has received a special order to sell 5,000 units at $12 per unit. Kansas Company has excess capacity avalable, but these 5,000 units would require 60 setups. If Kansas Company accepts the special order, what is the increase or decrease in net income? A) S0 B) decrease $5,000 C) decrease $15,000 D) increase $2,800 Answer: D Diff: 2 LO: 54 AACSB: Analytic skills Leaming Outcome: Distinguish between relevant and irelevant costs

Explanation / Answer

Answer is D. Increase in $2800 Explanation: Incremental revenue (5000 units @$12) 60000 Less: Incremental cost Variable (5000 units @$10) 50000 Setup (60 setups @$120) 7200 Incremental profits 2800

Related Questions

Navigate

• Browse (All)
• Browse K
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.