Score: 0 of 1 pt 70120 (6 complete) HW Score: 30%, 6 of 20 pts 8.3-16a Question

Question

Score: 0 of 1 pt 70120 (6 complete) HW Score: 30%, 6 of 20 pts 8.3-16a Question Help * 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 $440 Variable costs per unit Manufacturing Marketing and administrative $270 $90 Total fixed costs: Manufacturing Marketing and administrative $760,000 $210,000 If a special sales order is accepted for 4,100 seats at a price of $385 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? (NOTE: Assume regular sales are not affected by the special order.) O A. Decrease by $471,500 O B. Increase by $471,500 C. Increase by S 102,500 Increase by $2,685,500 O D.

Explanation / Answer

Calculate effect of special order :

Operating income increase by $471500

so answer is b) increase by $471500

Incremental revenue (4100*385) 1578500 Less: Incremental cost Variable manufacturing cost (4100*270) (1107000) Incremental Net operating income 471500

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