Question

Question 10 (4 points) The following information relates to a product produced by Creamer Company Direct materials Direct labor Variable overhead Fixed overhead Unit cost Fixed selling costs are $500,000 per year, and variable selling costs are $12 per unit sold. Although production capacity is 600,000 units per year, the company expects to produce only 400,000 units next year. The product normally sells for $120 each. A customer has offered to buy 60,000 units for $90 each If the firm produces the special order, the effect on income would be a O $360,000 increase $360,000 decrease 0 $540,000 increase $540,000 decrease. Question 11 (4 points) Depreciation is a cost that cannot be affected by any future action mixea 903 40% E

Answer 1

10
	Per unit	Total 60000 units
Incremental revenue	90	5400000
Incremental costs:
Variable costs:
Direct materials	24	1440000
Direct labor	15	900000
Variable manufacturing overhead	30	1800000
Variable selling costs	12	720000
Total Incremental costs		4860000
Incremental net operating income(loss)		540000
$540000 increase is correct option

2

Depreciation is a Sunk cost, a cost that cannot be affected by any future action.

Option D is correct

3

The first step in creating the master budget is Sales Budget.

Sales budget is used to prepare other budgets based on sales.

Option D is correct