Centric Sail Makers manufacture sails for sailboats. The company has the capacit

Question

Centric Sail Makers manufacture sails for sailboats. The company has the capacity to produce 35,000 sails per year, and is currently producing and selling 25,000 sails per year. The following information relates to current production.

Sales price per unit $175
Variable costs per unit:
Manufacturing $60
Selling and administrative $20
Total fixed costs:
Manufacturing $700,000
Selling and administrative $300,000

If a special sales order is accepted for 5,500 sails at a price of $150 per unit, and fixed costs remain unchanged, and there are no variable marketing and administrative costs for this order,what is the change in operating income?

Explanation / Answer

5500 sails Per unit Amount Sales revenue 150 825000 Variable cost Manufacturing 60 330000 Change in operating income 90 495000

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