Managerial Accounting Quiz: Special Order Decisions
2 questions · exam conditions
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Special Order DecisionsQuestion 1 of 2

Omega Corp currently sells 15,000 units annually at $120 per unit with variable costs of $70 per unit. A distributor offers to purchase 4,000 units at $85 per unit, but this would require Omega to provide a 2-year warranty (normally 1 year). The extended warranty is estimated to cost an additional $8 per unit. Current capacity is 20,000 units, but accepting this order would require reducing regular sales by 500 units due to production scheduling constraints. What is the net annual impact on profit?

Increase by $28,000
Increase by $3,000
Decrease by $25,000
Increase by $53,000
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Managerial Accounting Quiz

Managerial Accounting Quiz: Special Order Decisions

Practice Special Order Decisions in Managerial Accounting with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Special Order Decisions, giving you a quick way to practice the rules, question types, and explanations that matter most for Managerial Accounting.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

Omega Corp currently sells 15,000 units annually at $120 per unit with variable costs of $70 per unit. A distributor offers to purchase 4,000 units at $85 per unit, but this would require Omega to provide a 2-year warranty (normally 1 year). The extended warranty is estimated to cost an additional $8 per unit. Current capacity is 20,000 units, but accepting this order would require reducing regular sales by 500 units due to production scheduling constraints. What is the net annual impact on profit?

  1. Increase by $28,000
  2. Increase by $3,000 (correct answer)
  3. Decrease by $25,000
  4. Increase by $53,000
Explanation: Special order contribution: 4,000 × ($85 - $70 - $8) = 4,000 × $7 = 28,000.Lostcontributionfromreducedregularsales:500×(28,000. Lost contribution from reduced regular sales: 500 × (120 - $70) = 500 × $50 = $25,000. Net impact = $28,000 - $25,000 = $3,000 increase in profit.

Question 2

Zenith Manufacturing produces industrial motors with a normal capacity of 10,000 units per year. Current production is 8,500 units. The company has received a special order for 1,200 units at $85 per unit from an overseas distributor. This order would not affect regular sales. Current cost data per unit: Direct materials $35, Direct labor $25, Variable overhead $12, Fixed overhead $18 (based on normal capacity). The special order would require additional packaging costs of $3 per unit and a one-time setup cost of $2,400. Regular selling price is $110 per unit.

What is the minimum acceptable price per unit for this special order to break even?

  1. $77.00 (correct answer)
  2. $75.00
  3. $90.00
  4. $95.00
Explanation: The relevant costs are: Direct materials $35 + Direct labor $25 + Variable overhead $12 + Additional packaging 3+Setupcostperunit(3 + Setup cost per unit (2,400 ÷ 1,200) $2 = $77. Fixed overhead is not relevant since it will be incurred regardless. The minimum price to break even is $77.