Sale price per unit $250 Variable costs per unit: Manufacturing $165 Marketing a
ID: 2583323 • Letter: S
Question
Sale price per unit
$250
Variable costs per unit:
Manufacturing
$165
Marketing and administrative
$50
Total fixed costs:
Manufacturing
$750,000
Marketing and administrative
$200,000
If Clear Sky Sailmakers accepts a special order for 5,000 sails at a price of $225 per unit, and fixed costs remain unchanged, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.)
A.
Increase by $1,125,000
B.
Increase by $50,000
C.
Increase by $150,000
D.
Decrease by $50,000
Sale price per unit
$250
Variable costs per unit:
Manufacturing
$165
Marketing and administrative
$50
Total fixed costs:
Manufacturing
$750,000
Marketing and administrative
$200,000
Explanation / Answer
The correct answer is B. Increase by $ 50,000
Note :
Contribution Margin on the Special Order = Sales Price Per Unit- Total Variable Cost Per Unit
= $ 225 - $ 165 - $ 50
= $ 10
Hence, Total Contribution Margin on the Special Order = $ 10 * 5,000 Units
= $ 50,000
Since the Fixed costs remain unchanged, there is an increase in the operating income by $ 50,000
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