Sky High Seats manufactures seats for airplanes. The company has the capacity to

Question

Sky High Seats manufactures seats for airplanes. The company has the capacity to produce 100,000 seats per year, but currently produces and sells 75,000 seats per year. The following information relates to current production of seats: Sale price per unit $400 Variable costs per unit: Manufacturing $220 Marketing and administrative $50 Total fixed costs: Manufacturing $750,000 Marketing and administrative $200,000 If a special sales order is accepted for 4,000 seats at a price of $325 per unit, fixed costs remain unchanged, and no variable marketing and administrative costs will be incurred for this order, how would operating income be affected? Increase by $420,000 Increase by $220,000 Increase by $2,180,000 Decrease by $420,000

Explanation / Answer

Selling Price 325 Variable Cost       Mfg 220       Marketing & Administrative 0 Contribution Per Unit 105 Fixed Cost 0 Profit 105 No of Units 4000 Additional Profit 420000 So Profit is increased by $ 420000

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