Question

Voyage Sail Makers manufactures sails for sailboats. The company has the capacity to produce 36,000 sails per year and is currently producing and selling 25,000 sails per year. The following information relates to current​ production:

Sales price per unit $ 175
Variable costs per​ unit:
Manufacturing $ 50
Selling and administrative $ 20
Total fixed​ costs:
Manufacturing $ 675,000
Selling and administrative $ 250,000
Required:
1. If a special pricing order is accepted for 5,500 sails at a sales price of $ 170 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

Effect on income= $550,000 increase

Step-by-step explanation:

Giving the following information:

Variable costs per​ unit:

Manufacturing $ 50

Selling and administrative $ 20

Special offer= 5,500 units for $170.

To calculate the effect on income, we need to calculate the total contribution margin:

Total contribution margin= 5,500*(170 - 70)= $550,000