Question

Sky High Seats manufactures seats for airplanes. The company has the capacity to produce 100,000 seats per year, but currently produces and sells 75,000 seats per year. The following information relates to the current production of the product: Sale price per unit $400 Variable costs per unit: Manufacturing $220 Marketing and administrative $50 Total fixed costs: Manufacturing $750,000 Marketing and administrative $200,000 If a special sales order is accepted for 7,000 seats at a price of $350 per unit, and fixed costs remain unchanged, how would operating income be affected

Answer 1

there is an increase in operating income by $910,000

Step-by-step explanation:

The computation of the impact on the operating income is shown below

Sales (7,000 × $350) $2,450,000

Less: variable manufacturing cost (7,000 × $220) -$1,540,000

Operating income $910,000

Since the fixed cost would remain the same so here we do not considered it

Hence, there is an increase in operating income by $910,000