Clear Sky Sailmakers manufactures sails for sailboats. The company has the capac

Question

Clear Sky Sailmakers manufactures sails for sailboats. The company has the capacity to produce 15,000 sails per year, but is currently producing and selling 10,000 sails per year. The following information relates to current production:

Sale price per unit:
$250

Variable costs per unit:
Manufacturing
$165
Marketing and administrative
$50

Total fixed costs:
Manufacturing
$750,000
Marketing and administrative
$200,000

If Clear Sky Sailmakers accepts a special order for 5,000 sails at a price of $225 per unit, and fixed costs remain unchanged, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.)

A. Increase by $50,000
B. Increase by $150,000
C. Increase by $1,125,000
D. Decrease by $50,000

Explanation / Answer

Ans. A Increased by $50000 *Calculation: Sales (225 * 5000) 1125000 Less: Variable cost (215 * 5000) 1075000 Additional Profit 50000 Vaiable cost per unit = 165 + 50 215

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