Question

​Inscribe, Inc. manufactures and sells pens for $ 7.00 each. Cubby Corp. has offered​ Inscribe, Inc. $ 3.00 per pen for a oneminustime order of 3 comma 500 pens. The total manufacturing cost per​ pen, using absorption​ costing, is $ 1.00 per unit and consists of variable costs of $ 0.75 per pen and fixed overhead costs of $ 0.25 per pen. Assume that​ Inscribe, 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 $14,000
b. decrease of $14,000
c. increase of $7,875
d. decrease of $7,875

Answer 1

c. increase of $7,875

Step-by-step explanation:

The computation of the change in operating income is shown below:

= Number of pens for one-time order × (Selling cost per unit - variable cost per unit)

= 3,500 pens × ($3 per unit - $0.75)

= 3,500 pens × $2.25 per unit

= $7,875

The (Selling cost per unit - variable cost per unit) is also called contribution margin per unit

All other information which is given is not relevant. Hence, ignored it