AaBbCcI AaBbCcl A 1 Noomal 1 No Spa 3) Wisconsin Company has a current productio

Question

AaBbCcI AaBbCcl A 1 Noomal 1 No Spa 3) 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 $2.00 about purchasing 20,000 units at each. Current sales would not be affected by the special order and no additional fixed costs would 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 Diff: 2 Page Ref: 184 LO: 5-4 AACSB: Analytic Skills

Explanation / Answer

Variable cost per unit = 0.9

Fixed cost per unit = 0.5

As no additional fixed costs would be incurred on the special order, the only relavent cots are variable costs.

Fixed costs per unit are irrelavent in decision making as they would continue to incurr irrespective of the number of units produced.

Increase in costs = 20,000*0.9 = 18,000.

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