Search Gardner Sail Makers manufactures sails for sailboats. The company has the

Question

Search Gardner Sail Makers manufactures sails for sailboats. The company has the capacity to produce 36,000 d sails per year and is currently producing and selling 30,000 sails per year. The following information relates to current production: Sales price per unit Variable costs per unit: Manufacturing Selling and administrative Total fixed costs: Manufacturing Selling and administrative $185 $62 $20 $675,000 $250,000 Assume that a special pricing order is accepted for 5.600 sails at a sales price of $140 per unit. This special order requires both variable manufacturing and variable selling and administrative costs, as well as incremental fixed costs of $401,000. What will be the impact on operating income? Select one: A. Operating income increases by $76,200 B. Operating income decreases by $76,200. C. Operating income increases by $324,800 D. Operating income decreases by $324,800

Explanation / Answer

Answer:-If the special pricing order is accepted for 5600 sails then opreating income will decreases by $76200 (Optiom B).

Hence opreating income will be =$2165000-$76200

=$2088800

Explanation:-1)-

2)-

Gardner Sails Makers Calulation of net opreating income (30000 sails) Particulars Amount $ Sales value 30000 sails*$185 per unit 5550000 Less:- Variable cost Manufacturing 30000 sails*$62 per unit 1860000 Marketing & administrative 30000 sails*$20 per unit 600000 Contribution 3090000 Less:- Fixed costs Manufacturing 675000 Marketing & administrative 250000 Opreating Income 2165000

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