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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: If a special sales order is accepted for 2,500 sails at a price of $205 per unit, fixed costs increase by $14,000, and variable marketing and administrative costs for that order are $25 per unit, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.)A. Increase by $23,500B. Decrease by $23,500C. Increase by $37,500D. Increase by $86,000

Respuesta :

TomShelby

Answer:

D. Increase by $86,000

Explanation:

(the question has incomplete parts)

Variable costs per unit:

Manufacturing $140

Marketing and administrative $37

Fixed Cost per Unit:

Manufacturing $75

Marketing and administrative $20

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The relevant cost to accept or not the special order should only be the cost generated for the order we hould disregard the rest:

sales revenue   2,500 x $ 205  =  $      512,500

variable cost    

manufacturing:     2,500 x $ 140 =  $  ( 350,000)

mark and admin:  2,500 x $  25  = $   (   62,500)*

fixed cost:                                         $   (    14,000)**  

contribution for the special order $         86,000  

*we should consider the cost for the special order

**the other fixed cost per unit are cost already incurred. The company will have to afford them even if denies the special order thus, are not relevant. Only the increase in 14,000 matters.

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