Modesto Company Produces CD Players for Home Stereo Units

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: 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