8.3-18a Question Help Widget Inc. manufactures widgets. The company has the capa

Question

8.3-18a Question Help Widget Inc. manufactures widgets. The company has the capacity to produce 100,000 widgets per year, but it currently produces and sells 75,000 widgets per year. The following information relates to current production: Sale price per unit S42 Variable costs per unit Manufacturing Marketing and administrative $23 S5 Total fixed costs: Manufacturing Marketing and administrative $78,000 S20,000 If a special sales order is accepted for 2,700 widgets at a price of $35 per unit, fixed costs increase by $10,000, and variable marketing and administrative costs for that order are $2 per unit, how would operating income be affected? (NOTE Assume regular sales are not affected by the special order.) 0 A. Increase by S22400 B. Increase by SI 7,000 O C. Increase by S27,000 O D. Decrease by $17,000

Explanation / Answer

Calculate Effect on operating income :

so answer is b) Increase by $17000

Incremental revenue (2700*35) 94500 Less: Incremental cost Variable manufacturing cost (2700*23) (62100) Variable marketing and administrative (2700*2) (5400) Fixed cost (10000) Incremental operating income 17000

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