Fact Pattern: Raymund, Inc., a bearings manufacturer, has the capacity to produce 7,000 bearings per...
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Accounting
Fact Pattern: Raymund, Inc., a bearings manufacturer, has the capacity to produce 7,000 bearings per month. Raymunds income statement for an average month is as follows:
Raymund has an effective income tax rate of 40%. The company is considering two mutually exclusive options, replacing a portion of its labor intensive production process with a highly automated process, or filling a one-time special order.
If Raymund retools its production process, the companys fixed manufacturing costs would be increased by $30,000 per month and its variable costs would be reduced by $5 per unit. If Raymund selects this option, the companys monthly operating income would be:
a. $5,000
b. $10,000
c. $30,000
d. $40,000
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