Centric Sail Makers manufacture sails for sailboats. The company has the capacit
ID: 2401666 • Letter: C
Question
Centric Sail Makers manufacture sails for sailboats. The company has the capacity to produce 35,000 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 $60
Selling and administrative $20
Total fixed costs:
Manufacturing $700,000
Selling and administrative $300,000
If a special sales order is accepted for 5,500 sails at a price of $150 per unit, and fixed costs remain unchanged, what is the change in operating income? (Assume the special sales order will require variable manufacturing costs and variable marketing and administrative costs.)
Explanation / Answer
Change in net operating income:
= Additional sale units×Contribution per unit
= 5,500×($150-$60-$20)
= $385,000
Net operating income will increase by $385,000