Problem 5 (10 points): Briny Sail Makers manufactures sails for sailboats. The c

Question

Problem 5 (10 points): Briny Sail Makers manufactures sails for sailboats. The company has the capacit produce 50,000 sails per year and is currently producing and selling 30,000 sails per year. The following information relates to current production: capacity to $17 ales price per unit Variable costs per unit Manufacturing Selling and administrative $22 otal fixed costs: Manufacturing Selling and administrative $300,000 $675,000 Ifa special pricing order is accepted for 5,500 sails at a sales price of $160 per unit and for the order the variable or fixed selling and administrative costs are unavoidable, what is the effect on operating income?

Explanation / Answer

Incremental analysis :

net operating income increase by $418000

Incremental revenue (5500*160) 880000 Incremental cost Variable manufacturing cost (5500*62) -341000 Variable selling and administrative exp (5500*22) -121000 Total incremental cost -462000 Incremental profit (loss) 418000

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