Lowwater Sailmakers manufactures sails for sailboats and sells them to regular c

Question

Lowwater Sailmakers manufactures sails for sailboats and sells them to regular customers at S140/unit. The company has the capacity to produce 25,000 sails per year, but is currently producing and selling 20,000 sails per year. The following information relates to current production Sale price per unit $150 Variable costs per unit: Manufacturing Marketing and administrative S55 S25 Total fixed costs: Manufacturing Marketing and administrative S640,000 $280,000 21. If a special sales order is accepted for 5,000 sails at a price of $125 per unit, how would operating income be affected? (NOTE: Idle Capacity) A. B. C. D. Decrease by $75,000 Increase by $190,000 Decrease by $125,000 Increase by $225,000 22. Let us now assume that Lowwater Sailmakers is operating at full capacity. That is Lowwater Sailmakers will be selling all 25,000 sails to regular customers this year. Nevertheless, if a special sales order is accepted for 5,000 sails at a price of S125 per unit, how would operating income be affected? (NOTE: No Idle Capacity) A. Decrease by $75,000 B. Increase by $190,000 C. Decrease by $125,000 D. Increase by $225,000

Explanation / Answer

Sales 20000 units Sales 25000 units Sales $                     30,00,000 $               36,25,000 (20,000 units * $ 150) (20,000 units * $ 150 + 5000 units * 125) Less : Variable Cost per units $                     11,00,000 $               13,75,000 Less : marketing and admistration $                       5,00,000 $                 6,25,000 Contribution Expenses $                     14,00,000 $               16,25,000 Less : Fixed Cost Manufacturing $                       6,40,000 $                 6,40,000 Marketing and administration $                       2,80,000 $                 2,80,000 Net Profit $                       4,80,000 $                 7,05,000 Difference $                       2,25,000 Answer = Option D = $ 225,000 Sales 20000 units Sales 25000 units Sales $                     35,00,000 $               41,25,000 (25,000 units * $ 140) (25,000 units * $ 140 + 5000 units * 125) Less : Variable Cost per units $                     13,75,000 $               16,50,000 Less : marketing and admistration $                       6,25,000 $                 7,50,000 Contribution Expenses $                     15,00,000 $               17,25,000 Less : Fixed Cost Manufacturing $                       6,40,000 $                 6,40,000 Marketing and administration $                       2,80,000 $                 2,80,000 Net Profit $                       5,80,000 $                 8,05,000 Difference $                       2,25,000 Answer = Option D = $ 225,000

Related Questions

Navigate

• Browse (All)
• Browse L
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.