Fox, Inc manufactures and sells pens for $5 each
Walton Corp has offered Fox, Inc $4 per pen for a one-time order of 3,600 pens. The total manufacturing cost per pen, using absorption costing, is $1 per unit and consists of variable costs of $0.80 per pen and fixed overhead costs of $0.20 per pen. Assume that Fox, Inc has excess capacity and that the special pricing order would not adversely affect regular sales. What is the change in operating income that would result from accepting the special pricing order?
A) increase of $3,600
B) decrease of $3,600
C) increase of $11,520
D) decrease of $11,520
C .C)
Sales revenue (3,600 x 4 ) $14,400
Variable Manufacturing Costs (3,600 x 0.8 ) 2,880
Increase in operating income $11,520
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