Reference no: EM132975993

Question - Carla's Cakes makes birthday themed sheet cakes for customers which sell for $50 each. The costs to make the cakes are as follows:

Direct Materials $5

Direct Labor 32

Manufacturing Overhead 3 (Of this $3, $1 is variable and $2 are fixed)

Karen Kustomer wants a special birthday cake from Carla's Cakes. Instead of a sheet cakes, she is requesting a three-tiered cake. She is offering to pay $52. Carla's Cakes can accept this special order without disrupting normal production or affecting the fixed portion of manufacturing overhead. However, a tiered cake will increase Direct Materials by $3, Direct Labor by $8, and new cake pans will have to be purchased for $12. Should Carla's Cakes accept the special order? Why or why not?

A. Yes because net income would increase by $29.

B. No because net income would decrease by $9.

C. No because net income would decrease by $8.

D. Yes because net income will increase by $3.