Reference no: EM131795221

Question - Chris Corp. currently sells 40,000 dental tools to its normal customers, but it has a capacity to produce 50,000 tools. Its product sells for $30 per tool and the variable costs incurred in manufacturing and selling the product are as follows on a per tool basis:

Direct materials - $8;

Direct labor - $4;

Sales commission - $2.

A customer has proposed a special order to purchase 10,000 tools at a special price of $20 per unit. If Chris Corp accepts the order, the company would not have to pay its sales people their normal commission of $2 per unit, but the company would incur a shipping cost of $3 per unit.

If Chris Corp accepts the special order, how would operating income be affected?

a. Decrease by $80,000

b. Decrease by $120,000

c. Increase by $30,000

d. Increase by $50,000

What is the minimum price per unit below which Chris Corp should reject the order?

a. $12

b. $15

c. $31

d. $33