Question

Voyage Sail Makers manufactures sails for sailboats. The company has the capacity to produce 36 comma 000 sails per year and is currently producing and selling 30 comma 000 sails per year. The following information relates to current​ production: Sales price per unit $ 180 Variable costs per​ unit: Manufacturing $ 50 Selling and administrative $ 20 Total fixed​ costs: Manufacturing $ 675 comma 000 Selling and administrative $ 250 comma 000 If a special pricing order is accepted for 5 comma 700 sails at a sales price of $ 160 per​ unit, and fixed costs remain​ unchanged, what is the change in operating​ income? (Assume the special pricing order will require variable manufacturing costs and variable selling and administrative​ costs.)

Answer 1

$513,000

Step-by-step explanation:

For computing the change in operating income first we have to determine the contribution margin per unit which is shown below:

Sale price $160

Less: variable cost

Manufacturing cost per unit -$50

Selling and administrative costs per unit -$20

Contribution margin per unit $90

Now Increase in operating income equal to

= Contribution margin per unit of new order × number of units sold at a special pricing model

= $90 × 5,700

= $513,000