This Question: 3 pts 21of28 (0 complete) | This Test: 100 pts possible Saltwater

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This Question: 3 pts 21of28 (0 complete) | This Test: 100 pts possible Saltwater Sail Makers manufactures salts for saiboets. The compeny has the capecity to produce 36,000 sails per year and is currently producing and selling 30,000 sails per year. The following information las o current production Sales price per unt Variable costs per unit $185 Manufacturing Seling and administrative Total fixed costs $700,000 $250,000 Seling and administrative Assume that a special pricing order is accepted for 5,700 sais at a sales price of $150 per unit This special order requares both variable menufacturing and variable seling and administative costs, as well as ncremental fxed costs of $400,000 What will be the impact on operating income A. Operating rcerne decreases by $1,000 8. Operating more increases by tm000 C. Operating none increases by $1,000 O D. Operating inoome decreases by $309 000

Explanation / Answer

Impact on operating income :

so answer is a) Operating income decreases by $1000

Incremental revenue (5700*150) 855000 Less: Incremental cost Variable manufacturing cost (5700*60) (342000) Variable selling and administrative cost (5700*20) (114000) Incremental fixed cost (400000) Incremental operating income (1000)

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