Makers manufactures sals for sailboats. The company has the capacity to produce
ID: 2592777 • Letter: M
Question
Makers manufactures sals for sailboats. The company has the capacity to produce 36,000 sails per year 9Centric Sail ed 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 S60 $20 5675,000 5300,000 If a special pricing order is accepted for 5,600 sails at a sales price of $150 per unit, and fixed costs remain unchanged what is the change in operating income? (Assume the special pricing order will tequire variable manufacturing costs and variable selling and adminustrative costs.) Select one A. Operating income increases by $392.000. 8. Operating income decreases by $392000 C. Operating income increases by $940,000 D, Operating income decreases by $840,000.Explanation / Answer
Answer is A.operatig income increases by $392,000.
Workings:
Selling Price per unit for Special Order $150
Less: Variable cost per Unit (Manufacturing & Selling and Admn) $80
_______
Contribution Per Unit $70
Contribution fo 5,600 Units = $70*5600= $3,92000
As there is no additional Fixed cost incurred for this and additional units required are
within capacity Operating income will increase by $392,000
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