Question

If a special sales order is accepted for 2,800 widgets at a price of 32 per​ unit, fixed costs increase by $5,000​, and variable marketing and administrative costs for that order are $3 per​ unit, how would operating income be​ affected? (NOTE: Assume regular sales are not affected by the special​ order.)

Answer 1

An increase in the fixed costs would increase the total cost of goods sold, and there for reducing the operation income. In our case the operating income=$76,200

Step-by-step explanation:

The formula for the operating income can be expressed as;

Operating income=Total revenue from sales-cost of goods sold

where;

Total revenue from sales=price per unit×number of units sold

price per unit=32

number of units sold=2,800

Total revenue from sales=(32×2,800)=$89,600

Cost of goods sold=total fixed cost+total variable cost

Total fixed cost=$5,000

total variable cost=cost per unit×number of units

total variable cost=(3×2,800)=$8,400

Cost of goods sold=5,000+8,400=$13,400

Operating income=89,600-13,400=$76,200

An increase in the fixed costs would increase the total cost of goods sold, and there for reducing the operation income. In our case the operating income=$76,200