Gardner Sail Makers manufactures sails for sailboats
The company has the capacity to produce 37,000 sails per year and is currently producing and selling 30,000 sails per year. The following information relates to current production:
Sales price per unit $185
Variable costs per unit:
Manufacturing $62
Selling and administrative $22
Total fixed costs:
Manufacturing $675,000
Selling and administrative $250,000
Assume that a special pricing order is accepted for 5,500 sails at a sales price of $150 per unit. This special order requires both variable manufacturing and variable selling and administrative costs, as well as incremental fixed costs of $400,000. What will be the impact on operating income?
A) Operating income decreases by $363,000.
B) Operating income decreases by $37,000.
C) Operating income increases by $363,000.
D) Operating income increases by $37,000.
B .B)
Sales $825,000
Less: Variable costs
Manufacturing $341,000
Selling and administrative 121,000 462,000
Less: incremental fixed costs 400,000
Decrease in operating income $(37,000 )
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