Do the Hustle Company, a manufacturer of bell bottom jeans, has the capacity to produce 15,000 pairs of jeans each month. Current production and sales are 10,000 pairs per month at a selling price of $15 each. Based on this level of activity, the following unit costs are incurred: Direct Materials $5.00 Direct Labor $3.00 Variable MOH $0.75 Fixed MOH $1.50 Hustle has received a special order from a customer who wants to pay a reduced price of $10 per pair of jeans for an order of 6,000 pairs of jeans. If the special order is accepted, what will be the change in operating income? A. increase of $1,250 B. decrease of $30,000 C. increase of $5,000 D. increase of $7,500 E. decrease of $6,250

Question

Francis Savage

Business

6 July, 22:46

Do the Hustle Company, a manufacturer of bell bottom jeans, has the capacity to produce 15,000 pairs of jeans each month. Current production and sales are 10,000 pairs per month at a selling price of $15 each. Based on this level of activity, the following unit costs are incurred: Direct Materials $5.00 Direct Labor $3.00 Variable MOH $0.75 Fixed MOH $1.50 Hustle has received a special order from a customer who wants to pay a reduced price of $10 per pair of jeans for an order of 6,000 pairs of jeans. If the special order is accepted, what will be the change in operating income? A. increase of $1,250 B. decrease of $30,000 C. increase of $5,000 D. increase of $7,500 E. decrease of $6,250

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Answers (1)

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Cara · Answer 1

The correct answer is D.

Explanation:

Giving the following information:

Direct Materials $5.00

Direct Labor $3.00

Variable MOH $0.75

Fixed MOH $1.50

Hustle has received a special order from a customer who wants to pay a reduced price of $10 per pair of jeans for an order of 6,000 pairs of jeans.

Because it is a special offer, we will no have into account the fixed costs.

Increase in income = [10 - (5+3+0.75) ]*6000 = 7500