ACCT 2401 TEST PREP EXAMS SOLUTIONS AVAILABLE

ACCT 2401 TEST PREP EXAMS SOLUTIONS AVAILABLE For Questions 1-3 use the following data: Pringle Company sells a single product. The company’s sales and expenses are as follows: Sales $600,000 $40 Less variable expenses 420,000 28 Contribution margin 180,000 12 Less fixed expenses 150,000 Net Income $ 30,000 1. What is the break-even in units sold and in dollars? 2. Without computations, what is the total contribution margin at breakeven? 3. How many units would have to be sold to earn a profit of $18,000? 4. Information concerning Label Corporation’s operations follow: Sales $300,000 Variable expenses 240,000 Fixed expenses 40,000 Assuming that Label increased sales by 20%, what should net operating income be? A) $20,000 B) $24,000 C) $32,000 D) $80,000 5. Pool Company’s variable expenses are 36% of sales. Pool is contemplating an advertising campaign that will cost $20,000. If sales increase by $80,000, the company’s net operating income should increase by: A) $28,800 B) $64,000 C) $ 8,800 D) $31,200 6. At a break-even point of 800 units sold, White Company’s variable expenses are $8,000 and it’s fixed expenses are $4,000. What will the Company’s net income be at a volume of 801 units? a. $15 b. $10 c. $5 d. $20 Use the following information to answer the next three questions (and assume the questions are independent): Prince Company’s most recent income statement is shown below: Sales (13,500 units) $270,000 Less Variable Costs 189,000 Contribution Margin $81,000 Less Fixed Costs 90,000 Net Loss ($9,000) 7. If Prince increases its selling price by 20 percent and decreases its variable costs by 20 percent, what is the impact on Prince’s contribution margin? a. The contribution margin will remain the same. b. The contribution margin will increase by 40%. c. The contribution margin will be $151,200. d. The contribution margin will be $172,800. 8. What is Prince’s net income (or loss) if the sales volume increases by 20%, fixed expenses increase by $30,000, and variable costs decreases by 5%? a. $(11,460) b. $(14,450) c. $18,540 d. $24,450 9. What is the impact on Prince’s net income if the selling price decreases by 10%, sales volume increases by 30%, and fixed cost increase by $10,000? a. An increase of $8,100. b. An increase of $10,800. c. A decrease of $20,800. d. A decrease of $29,800. 10. The break-even point is the point where a. total sales revenue equals total expenses, variable and fixed. b. total contribution margin equals total fixed expenses. c. both a and b are true. d. neither a nor b is true. 11. The break-even point in units is calculated using a. fixed expenses and the contribution margin ratio. b. variable expenses and the contribution margin ratio. c. fixed expenses and the unit contribution margin. d. variable expenses and the unit contribution margin. 12. Which of the following represents the calculation of the contribution margin ratio? a. (Sales - Fixed Expenses)/Sales b. (Sales - Cost of Goods Sold)/Sales c. (Sales - Variable Expenses)/Sales d. (Sales - Total Expenses)/Sales 13. Terrell, Inc. sells a single product at a selling price of $40 per unit. Variable costs are $22 per unit and fixed costs are $82,800. Terrell's break- even point is: a. $184,000 b. 3,764 units c. $150,540 d. 2,070 units 14. Keller Co. sells a single product for $28 per unit. If variable costs are 65% of sales and fixed costs total $9,800, the break-even point will be (rounded): a. $15,077 b. $18,200 c. 539 units d. 1,000 units 15. The Martin's variable costs are 35% of sales. Martin is contemplating an advertising campaign that will cost $25,000. If sales are expected to increase $75,000, the company's net income will increase by: a. $26,250 b. $23,750 c. $1,250 d. $65,000 16. The contribution margin ratio is 30% for the SpiceCo and the breakeven point in sales is $150,000. If the company desires a target net income of $60,000, sales would have to be: a. $200,000 b. $350,000 c. $250,000 d. $210,000 17. The following figures are taken from Parker Company’s income statement: Net income, $30,000; Fixed costs, $90,000; Sales, $200,000; and CM ratio, 60%. What is the company’s total contribution margin? a. $110,000 b. $120,000 c. $170,000 d. $200,000 18. At Wendell Corporation, the selling price per unit is $800 and variable cost per unit is $500. Fixed costs are $1,000,000 per year. Wendell’s contribution margin per unit is: a. $300 b. $375 c. 2,300 units d. None of the above. 19. Wendell’s break-even point is approximately: a. 3,333 units b. 6,667 units c. 5,500 units d. None of the above. 20. Assuming Wendell’s sales are $3,000,000, profit will be: a. $125,000 b. $680,000 c. $750,000 d. None of the above. 21. If Wendell sells 20 units above its break-even point, what will be the company’s net income? a. $16,000 b. $12,000 c. $6,000 d. $3,000 22. In March, Olympus Company estimated the following costs related to the production of 10,000 units: Direct Materials $60,000 Direct Labor 20,000 Rent 5,000 Depreciation 4,000 The estimated variable cost per unit is. a. $8.90 b. $2.00 c. $2.90 d. $8.00 23. The contribution margin ratio measures: a. Profit per unit. b. Contribution margin per dollar of sales. c. Profit per dollar of sales. d. The ratio of variable to fixed costs. Use the following to answer the next two questions: Gossen Company is planning to sell 200,000 pliers for $4.00 per unit. The contribution margin ratio is 25%. 24. If Gossen will break even at this level of sales, what are the fixed costs? a) $100,000 b) $160,000 c) $200,000 d) $300,000 25. If Gossen lowers its selling price by 20% to sell 300,000 units and its fixed costs decrease by $50,000, its net income will be: a) ($90,000) b) ($140,000) c) $200,000 d) $60,000 26. The break-even point is the level of activity where: a. total revenue equals total cost. b. variable cost equals fixed cost. c. total contribution margin equals the sum of variable cost plus fixed cost. d. sales revenue equals total variable cost. e. profit is greater than zero. 27. The unit contribution margin is calculated as the difference between: a. selling price and fixed cost per unit. b. selling price and variable cost per unit. c. selling price and product cost per unit. d. fixed cost per unit and variable cost per unit. e. fixed cost per unit and product cost per unit. 28. Ribco Co., makes and sells only one product. The unit contribution margin is $6 and the break-even point in unit sales is 24,000. The company’s fixed expenses are: a. $4,000 b. $14,400 c. $40,000 d. $144,000 e. $400,000 29. Adams has a break-even point of 40,000 units. If the firm’s sole product sells for $24 and fixed costs total $240,000 the variable cost per unit must be: a. $6 b. $10 c. $18 d. an amount that cannot be derived based on the information presented. e. an amount other than those in choices “a”, “b”, and “c” but one that can be derived based on the information presented. 30. The contribution margin ratio is: a. the difference between the selling price and the variable cost per unit. b. fixed cost per unit divided by the selling price. c. variable cost per unit divided by the selling price. d. unit contribution margin divided by the selling price. e. unit contribution margin divided by fixed cost per unit. Use the following information in solving multiple-choice 31-33. Archie sells a single product for $50. Variable costs are 60% of the selling price, and the company has fixed expenses that amount to $400,000. Current sales total 16,000 units. 31. Archie: a. will break-even by selling 8,000 units. b. will break-even by selling 13,333 units. c. will break-even by selling 20,000 units. d. will break-even by selling 1,000,000 units. e. cannot break-even because it loses money on every unit sold. 32. Each unit that the company sells: a. will increase overall profitability by $20. b. will increase overall profitability by $30. c. will increase overall profitability by $50. d. will increase overall profitability by some other amount. e. will decrease overall profitability by $5. 33. In order to produce a target profit of $22,000, Archie’s dollar sales must total: a. $8,440 b. $21,100 c. $1,000,000 d. $1,055,000 e. some other amount. 34. A product sells for $20 per unit, and has a contribution margin ratio of 40%. Fixed expenses total $120,000 annually. How many units must be sold to yield a profit of $30,000? a. 12,500 b. 18,750 c. 20,000 d. 25,000 35. The Milham Company has two divisions – East and West. The divisions have the following revenues and expenses: East West Sales…………………………………. $720,000 $350,000 Variable costs……………………….. 370,000 240,000 Traceable fixed costs………………… 130,000 80,000 Allocated common corporate costs….. 120,000 50,000 Operating income(loss)…………… $100,000 $(20,000) The management at Milham is pondering the elimination of the West division since it has shown an operating loss for the past several years. If the West division were eliminated, its traceable fixed costs could be avoided. The total common corporate costs would be unaffected by this decision. Given these data, the elimination of the West Division would result in an overall (or NEW) company operating income of: a. $100,000 b. $80,000 c. $120,000 d. $50,000 36. Bertram Company (a multi-product firm) produces 5,000 units of Product X each year. Each unit of Product X sells for $8 and has a contribution margin of $5. If Product X is discontinued, $18,000 of fixed overhead would be eliminated. As a result of discontinuing Product X, the company’s overall operating income would: a. decrease by $25,000 b. increase by $43,000 c. decrease by $7,000 d. increase by $7,000 37. Gordon Company produces 1,000 units of a part per year which are used in the assembly of one of its products. The unit cost of producing these parts is: Variable manufacturing cost $15 Fixed manufacturing cost 12 Total manufacturing cost $27 The part can be purchased from an outside supplier at $20 per unit. If the part is purchased from the outside supplier, two-thirds of the total fixed costs incurred in producing the part can be eliminated. The annual increase or decrease on the company’s operating incomes as a result of buying the part from the outside supplier would be: a. $3,000 increase b. $1,000 decrease c. $7,000 increase d. $5,000 decrease 38. The following are Silver Company’s unit costs of making and selling an item at a volume of 8,000 units per month (which represents the company’s capacity): Manufacturing: Direct materials $4 Direct labor 5 Variable overhead 2 Fixed overhead 8 Selling and administrative: Variable 1 Fixed 6 Present sales amount to 7,000 units per month. An order has been received from a customer in a foreign market for 1,000 units at a price of $20 per unit. The order would not affect regular sales. Fixed costs, both manufacturing and selling and administrative, are constant within the relevant range between 6,000 and 8,000 units per month. The variable selling and administrative costs would have to be incurred for this special order as well as all other sales. If the company accepts the special order, the effect on total operating income will be a: a. $1,000 increase b. $9,000 increase c. $6,000 decrease d. $8,000 increase 39. The decision to drop a product line should be based on: a. the fact that the product line shows a net loss over several periods. b. the ability of the firm to eliminate some fixed costs as a result of dropping the product. c. whether the fixed costs that can be avoided by dropping the product line are less than the contribution margin that will be lost. d. whether the fixed costs that can be avoided by dropping the product line are greater than the contribution margin lost. 40. The WorldCo has two divisions: North and South. The divisions have the following revenues and expenses: North South Sales $450,000 $400,000 Variable costs $225,000 $150,000 Direct fixed costs $130,000 $105,000 Allocated corporate costs $120,000 $ 95,000 Net income (loss) $(25,000) $ 50,000 The management of WorldCo is considering the elimination of the North Division. If the North Division were eliminated, the direct fixed costs associated with this division could be avoided. Given these data, the elimination of the North Division would result in an overall company net income (loss) of: a. $50,000. b. $(70,000). c. $25,000. d. $(75,000). 41. One of Simplex Company’s products has a contribution margin of $50,000 and fixed costs totaling $60,000. If the product is dropped, $40,000 of the fixed costs will continue unchanged. As a result of dropping the product, the company’s net operating income should: a. decrease by $50,000 b. increase by $30,000 c. decrease by $30,000 d. increase by $10,000 42. Which of the following is not relevant when considering whether or not to drop a product? a. The contribution margin. b. Qualitative factors. c. The potential impact on demand for other products. d. Allocated common costs. The next two questions refer to the following: The Wenter, Inc. is considering the addition of a new line of product to its current product lines. The expected cost and revenue data for the new product are as follows: Annual sales 2,500 units; Selling price per unit $304 Variable costs per unit: Production $125; Selling $49 Avoidable traceable fixed costs per year: Production $50,000; Selling $75,000 Unavoidable allocated corporate costs per year: $55,000. If the new product is added to the existing product line, the contribution margin of the other existing product lines is expected to drop $65,000 per year. 43. If the new product line is added next year, the increase in net income resulting from this decision would be: a. $325,000. b. $200,000. c. $145,000. d. $135,000. 44. What is the lowest selling price per unit that could be charged for the new product line and still make it economically desirable to add the new product line? a. $250. b. $224. c. $232. d. $282. 45. Bubblemania has three product lines: A, B, and C. A B C Total Sales $10,000 $9,000 $12,000 $31,000 Variable costs 4,500 7,000 6,000 17,500 Contribution margin 5,500 2,000 6,000 13,500 Fixed costs 3,500 6,000 3,000 12,500 Net Income 2,000 (-4,000) 3,000 1,000 Product B appears to be unprofitable, and management is considering discontinuing the line. If it is discontinued, $1,000 of the line’s fixed costs can be avoided. The discontinuation of product B would: a. increase net income by $3,000 b. decrease net income by $3,000 c. increase net income by $1,000 d. decrease net income by $1,000 46. Grace Sullivan & Company has two sales offices: one located in Portland and one in Portsmouth. The company’s records report the following informations: Portland Portsmouth Sales $40,000 $50,000 Direct costs: Variable 15,000 25,000 Fixed 10,000 10,000 Management is considering dropping the Portland office. What will be the resulting operating income if Portland is eliminated and half of its fixed costs are avoidable? 47. In the decision to replace an old machine with a new machine, which of the following would be considered a relevant cost? a. The book value of the old equipment. b. Depreciation expense on the old equipment. c. The loss on the disposal of the old equipment. d. The current disposal price of the old equipment. 48. The Regal, Inc. makes 35,000 motors to be used in the production of its sewing machines. The cost per motor at this level of activity would be: Direct materials $4.50; Direct labor $4.60; Variable factory overhead $3.75; Fixed factory overhead $3.45. An outside supplier recently began producing a comparable motor for the sewing machine. The price to Regal for this motor is $15. If Regal decided not to make the motors, there would be no other use for the production facilities. If Regal decides to continue making the motor, how much higher or lower would net income be than if the motors are purchased from the outside supplier? a. $75,250 higher. b. $45,500 lower. c. $311,500 higher. d. $120,750 higher. 49. Jack's Personal Devices makes and sells hand-held computers. Each computer regularly sells for $200. The following cost data per computer are based on a full capacity of 12,000 computers produced each period: Direct materials $75; Direct labor 55; Factory Overhead (75% variable, 25% unavoidable fixed) 48. A special order has been received by Jack's for a sale of 2,500 computers to an overseas customer. The only selling costs that would be incurred on this order would be $10 per computer for shipping. Jack's is now selling 7,200 computers through regular distributors each period. What should be the minimum selling price per computer in negotiating a price for this special order? a. $200. b. $166. c. $178. d. $176. 50. All of the following costs are relevant in a make or buy decision except: a. the opportunity cost of space b. costs that are avoidable by buying rather than making c. variable costs of producing the item d. costs that are differential between the make and buy alternatives e. all of the above costs are relevant 51. Halley Company produces 2,000 parts each year that are used in one of its products. The unit product cost of this part is: Variable manufacturing cost $7.50 Fixed manufacturing cost $6.00 Unit product cost $13.50 The part can be purchased from an outside supplier for $10 per unit. If the part is purchased from the outside supplier, two-thirds of the fixed manufacturing costs can be eliminated. The effect on net operating income from purchasing the part would be: a. $3,000 increase b. $1,000 decrease c. $7,000 increase d. $5,000 decrease 52. Sunderson Products, Inc. has received a special order for 1,000 units of a sport- fighting kite. The customer has offered a price of $9.95 for each kite. The unit costs of the kite, at its normal sales level of 30,000 units per year, are detailed below: Variable production costs……………… $5.25 Fixed production costs………………… $2.35 Variable selling costs…………………. $0.75 Fixed selling and admin. costs………… $3.45 There is ample idle capacity to produce the special order without any increase in total fixed costs. The variable selling costs on the special order would be $0.15 per unit instead of $0.75 per unit. The special order would have no impact on the company’s other sales. What effect would accepting this special order have on the company’s net operating income? a. $1,850 increase b. $1,850 decrease c. $4,550 increase d. $4,550 decrease 53. Which of the following costs should not be taken into consideration when making a decision: a. Opportunity costs. b. Sunk costs. c. Relevant costs. d. Differential costs 54. Opportunity costs are: a. Never relevant costs. b. Always relevant costs. c. Sometimes sunk costs. d. None of the above. Chapters 5 & 10 Test Prep Solutions 1. Breakeven in units = FC/UCM = $150,000/$12 = 12,500 units Breakeven in sales = FC/CM% = $150,000/.30 = $500,000 (where CM% = CM/Sales, or $12/$40= 30%) 2. At breakeven, CM = FC, so CM must be $150,000 3. Targeted sales in units = (FC+Profit)/CMU = ($150,000 + $18,000)/$12 = 14,000 units 4. C If sales volume increases 20%, then so does VC (the more you sell, the more the total VC is for those items) S 300,000 *1.20 $360,000 This can also be solved using the CM % (80%) - VC 240,000*1.20 288,000 If you know sales are increasing by $60,000, multiply (20%) CM 60,000 * 1.20 72,000 that by the CM % (20%); Sales will increase $12,000; - FC 40,000 40,000 Sales were $20, 000, now they are $32,000 Op Inc. 20,000 32,000 5. D Remember - advertising costs (for this class) are FC Made up numbers With changes S $100,000 $180,000 ($100,000+$80,000) - VC 36,000 64,800 (.36 * 180,000) -b/c VC as a % of sales) CM 64,000 115,200 - FC 20,000 40,000 ($20,000+$20,000) Op Inc 44,000 75,200 So, NI is up $31,200 OR Change in CM = $80,000 increase in Sales * (100%-36% = 64%) 64% = 51,200 Change in FC = (20,000) Net to increase in OI = 31,200 6. C BE (units) = FC = 800 units = 4,000 → UCM = 5 UCM UCM 7. Original Selling price $20 ($270,000/13,500) Variable costs $14 ($189,000/13,500) CM% = 6/20 = 30% (.30) Cont. margin $ 6 Sales [$20 * 1.20] $24.00 -Var. Costs [$14 *.80] $11.20 Cont. Margin $12.80 * 13,500 units = $172,800 8. A Sales [$20.00] * [13,500*1.20] $20.00*16,200 $324,000 -Var. Costs [($14*.95= $13.30) * 16.200] $215,460 Cont. Margin $108,540 Fixed Costs (90,000+30,000) $120,000 Net Income/Loss ($11,460) 9. C Sales [$20.00 * .90] * [13,500*1.30] $18.00*17,550 $315,900 -Var. Costs [$14 * 17,550] $245,700 Cont. Margin $ 70,200 Fixed Costs (90,000+10,000) $100,000 Net Income/Loss ($29,800) Change in NI from ($9,000) to ($29,800) is a decrease of ($20,800) 10. c 11. c 12. c 13. a BE in unit = Fixed expenses $82,800 = 4,600 units CM per unit $18/unit SP/unit $40 4,600 units isn’t an answer so take 4,600 units -VC/unit $22 times $40 = $184,000 which is an answer so A CM/unit $18 14. d SP/unit 28.0 100% -VC/unit 18.2 (65% * 28) CM/unit 9.8 35% BE/units = Fixed costs 9,800 = $28,000 not an answer so divide by $28/unit CM/unit 35% selling price to get units sold to BE of 1,000 units 15. b Sales 100% Increase in CM = $75,000 x 65% = $48, 750 -VC -35% less increase in cost -$25,000 CM 65% Increase in net income $23,750 16. b Sales to attain = Fixed expenses + target profits $45,000 +$60,000 = $350,000 Target profits CM Ratio .30 BE in sales = Fixed expenses $150,000 = Fixed exp. Fixed exp = $45,000 CM ratio .30 17. b Sales * CM ratio = CM  $200,000 * .60 = $120,000 18. a SP 800 -VC 500 CM 300 19. a BE in units = Fixed costs 1,000,000 = 3,333 units CM/unit 300 20. a Sales of $3,000,000 divided by selling price of $800 indicates that 3,750 units were sold. CM (3,750u x $300 per unit) $1,125,000 - FC (1,000,000) NI 125,000 21. c CM of $300 x 20 units=$6,000 (once you go above break-even, all of the CM flows straight into NI) 22. d Variable costs are Direct Materials $60,000 and Direct Labor $20,000 Total variable costs $80,000 = $8.00 Units 10,000 23. b 24. c BE Sales = Fixed costs (solve for fixed costs) CM ratio $800,000 = Fixed costs Thus, FC=$200,000 .25 25. a Sales [$4.00(.8)=$3.20 x 300,000] $960,000 - VC [original $3 x 300,000] (900,000) CM 60,000 -FC [$200,000 (from #20) - $50,000] (150,000) NI $(90,000) 26. a 27. b 28. d BE(units) = FC →24,000 = FC → FC = $144,000 UCM 6 29.C Sales $24 -VC $18 (plug) CM $6 (see calculation below) BE(units) = FC →40,000 = $240,000 UCM = $6 UCM UCM 30.d 31. c 32. a 33. d 31-33. BE(units) = FC = BE(units) = $400,000 = 20,000 units UCM $20 (see calculation below) Sales $50 CM% = CM = 20 = 40% -VC $30 Sales 50 CM $20 34. B Sales $20 -VC $12 (plug) CM $ 8 (40% *20) Target sales (in units) = FC + TP →$120,000+$30,000 = $18,750 UCM 8 35. D Effect on NI if drop West Sales -350,000 -VC +240,000 CM -110,000 Trace FC +80,000 (these are relevant; common FC are not relevant) Effect on NI -30,000 Then, old NI of $80,000 (100,000-20,000) plus effect from above, -$30,000, gives you a new NI of $50,000. 36. C Effect on NI Sales -40,000 (5,000@$8) -VC +15,000 (5,000@$3) CM -25,000 (5,000@$5) Trace FC +18,000 (if eliminated, they are relevant) Effect on NI -7,0000 37. A Make Buy Cost to buy $20 Var Mfg $15 Fixed Mfg 8* Cost $23 $20 *Fixed Mfg = $8  It was $12, but two-third can be eliminated (is relevant because it differs between alternatives); thus .6667x$12 = $8 So $3 better off to buy @ 1,000 units = $3,000 increase to income. 38. D Relevant costs of the special order are: DM, DL, VMOH and Var Selling. The DM, DL, and VMOH are relevant because if you don’t produce, you don’t incur the costs. The var. selling is also relevant because if you take the order, you must pay the $1 per unit (probably a commission). Thus the relevant cost per unit is $4+$5+$2+$1= $12. If we get $20 for each and it cost us $12, we net $8 per unit and if we sell 1,000 units, we make $8,000. 39. D 40. B Drop North Effect on NI Sales -$ 450,000 VC +$225,000 Direct FC +$130,000 Effect on NI -$ 95,000 + $25,000 = -$70,000 (previous NI) 41. C Contribution margin lost $(50,000) Less avoidable fixed costs *… 20,000 Decrease in operating income………….. $30,000 *$60,000 - $40,000 = $20,000 42. D 43. D Add New Effect on NI Sales + $760,000 (2,500 x 304) VC - $435,000 (2,500 x (125+149)) Avoidable FC - $125,000 (50,000 + 75,000) CM of others - $ 65,000 Effect on NI +$135,000 44. A Relevant costs total $625,000 ($435,000 + $125,000 + $65,000) We are indifferent when sales total $625,000. So, we need sales to be at least $625,000 and we are selling 2,500 units. The minimum selling price is $250 ($625,000 / 2,500 units). 45 ) D Drop Product B: Effect on NI Sales -$ 9,000 VC +$ 7,000 (previous NI) FC(avoidable) +$ 1,000 + $1,000 = $0 (New net income) -$ 1,000 (change in NI) Income will go down my $1,000 if drop Product B and new net income would be 0. 46) Drop Portland: Effect on NI Sales -$ 40,000 VC +$ 15,000 FC(avoidable) +$ 5,000 -$ 20,000 (income will decrease $20,000 if drop Portland) 47. D 48. A Make Buy Direct materials $4.50 Direct labor $4.60 Var. OH $3.75 Var. Man costs$12.85 Price from supplier $15 Total relevant costs $12.85 $15 $15 - $12.85 = $2.15 (it would cost us $2.15 less to make the motors) $2.15 x 35,000 (motors) = $75,250 ( we would have this much more income if we continued to make the motors – because it is costing us less to make them) 49. D Direct materials $75 Direct labor $55 Var. OH $36 (75% of 48) Shipping $10 Var. Man costs$176 50. E 51.A Differential Cost Variable manuf. Costs………………. $7.50 Make Buy ----- Avoidable fixed manuf. cost……………………….. 4.00 ----- Outside purchase price………………. ----- $10.00 Total relevant cost…………………… $11.50 $10.00 2,000 units x $1.50 = $3,000 52. C Incremental costs of accepting special order: Variable production cost $5.25 Variable selling cost $ .15 Total incremental cost $5.40 If selling price is $9.95, profit per unit is $4.55 ( $9.95 - $5.40). If special order is for 1,000 units, then, effect on NI is an increase of $4,550 (1,000 x $4.55) 53. B 54. B