Question

Sundial Company manufactures and sells watches for $ 40each. TickminusTock Company has offered Sundial $ 25per watch for a oneminustimeorder of 5 comma 600watches. The total manufacturing cost per watch is $ 30per unit and consists of variable costs of $ 21per watch and fixed overhead costs of $ 9per watch. Assume that Sundial 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 sales​ order?

Answer 1

$22,400

Step-by-step explanation:

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

= Contribution margin per unit × number of watches

where,

Contribution margin per unit = Selling price per unit - Variable expense per unit

= $25 - $21

= $4

And, the number of watches are $5,600

So, the change in operating income would be

= $4 × 5,600

= $22,400