How acceptance of the special order would have the effect

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Question 1: Fraser Company has the capacity to produce 150,000 motors per year. The company is presently producing and selling 130,000 motors per year at a selling price of $40 per motor. The cost of producing one motor at the 130,000-unit level of activity is given below: Per motor Direct material $16 Direct labor 8 Factory overhead 10 Total cost $34 The company has a special order for 10,000 motors at a price of $33 each. Variable selling and administrative costs on the special order would be $2 per motor. The company's fixed overhead costs total $780,000 per year. Acceptance of the special order would have the following effect on the company's net income:

Option a. $30,000 decrease

Option b. $30,000 increase

Option c. $10,000 decrease

Option d. $10,000 increase

Option e. None of the above

Reference no: EM132547223

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