Modesto Company Produces CD Players for Home Stereo Units The Variable Distribution Costs Are for Transportation to the Retail

Multiple Choice

Modesto Company produces CD Players for home stereo units. The CD Players are sold to retail stores for $30. Manufacturing and other costs are as follows: $$\begin{array} { l r l r } \text { Variable costs per unit: } & & { \text { Fixed costs per month: } } \\\text { Direct materials } & \$ 9.00 & \text { Factory overhead } & \$ 120,000 \\\text { Direct labor } & 4.50 & \text { Selling and admin. } & 60,000 \\\text { Factory overhead } & 3.00 & \text { Total } & \$ 180,000 \\\text { Distribution } & 1.50 & & \\\text { Total } & \$ 18.00 & &\end{array}$$ The variable distribution costs are for transportation to the retail stores. The current production and sales volume is 20,000 per year. Capacity is 25,000 units per year.
A San Diego wholesaler has proposed to place a special one-time order of 10,000 units at a reduced price of $24 per unit. The wholesaler would pay all distribution costs, but there would be additional fixed selling and administrative costs of $3,000. All other information remains the same as the original data. What is the effect on profits if the special order is accepted?

A) increase of $12,000
B) increase of $57,000
C) increase of $75,000
D) decrease of $168,000