a. ufactures sails for sailboats. The company has the capacity to produce hd is

Question

a. ufactures sails for sailboats. The company has the capacity to produce hd is currently producing and selling 20,00o sails per year. The following 2. Lowwater Sailmakers man information relates to current production $150 Sale price per unit Variable costs per unit: Manufacturins Marketing and administrative $55 $25 Total fixed costs Manufacturing Marketing and administrative $640,000 $280,000 If a special sales order is accepted for 2,000 sails at a price of $95 per unit, what is the change in operating income? 6 points

Explanation / Answer

Note : While determining the profitability under special order regular total fixed costs are not relevant cost thus to be ignored.

Cost per unit of special order = Variable cost per unit = $55 + $25 = $80

Selling price per unit of special order = $95

Proit from special order =($95 - $80) * 2,000 sails = $30,000

Answer : By accepting special order , operating income increases by $30,000.

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