Question

he following information relates to current production of outdoor chaise lounges at Backyard​ Posh: Variable manufacturing costs per unit $ 105 Total fixed manufacturing costs ​$525,000 Variable marketing and administrative costs per unit $ 33 Total fixed marketing and administrative costs ​$250,000 The regular selling price per chaise lounge is $ 350. The company is analyzing the opportunity to accept a special sales order for 400 chaise lounges at a price of $ 200 per unit. Variable marketing and administrative costs would be $ 15 per unit lower than on regular sales. Fixed costs would increase by $ 13 comma 000. The company has the capacity to produce 35 comma 000 chaise lounges per​ year, but is currently producing and selling 9 comma 000 chaise lounges per year. Regular sales will not be affected by the special order. If the company were to accept this special​ order, how would operating income be​ affected? A. Decrease by $ 30 comma 800 B. Decrease by $ 17 comma 800 C. Increase by $ 30 comma 800 D. Increase by $ 17 comma 800

Answer 1

Increase by $17,800

Step-by-step explanation:

If the company accepts the special order for 200 chaise lounges, its profit will be:

Sales revenue = 400 x $200 = $80,000

variable production costs = 400 x $105 = ($42,000)

variable marketing and administrative costs = 400 x $18 = ($7,200)

increase in fixed costs = ($13,000)

profit resulting from the special order = $17,800