Answer:
$
Sale price 400
Variable cost
Manufacturing 250
Marketing and administrative 40
Total Fixed cost :
Manufacturing 790,000
Marketing and administrative 200,000
Sky High Seats manufactures seats for airplanes. The company has the capacity to produce 100,000 seats per year, but is currently produces and sells 75,000 seats per year. The following information relates to current production of seats: If a special sales order is accepted for 3,100 seats at a price of $330 per unit, and fixed costs increase by $15,000, how would operating income be affected? A. Increase by $109,000 B. Decrease by $109.000 C. Increase by $124,000 D. Increase by $233,000
Answer :
a) Increase by $109,000
Step-by-step explanation:
The relevant cost for decision to accept the special order are
I. the incremental contribution from of producing 3,100 units
2. The incremental fixed cost- 15,000
Note that whether or not the special order is accepted the manufacturing and Marketing and administrative fixed cost of 790,000 200,000 would be incurred either way.
Contribution per unit =Selling price - Variable cost
= $330 - (250+40) = $40
Incremental contribution = $40 × 3,100 = $124,000
Operating income would increase by = $124,000 -$ 15,000
= $109,000