Question

Comfort Cloud 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 current​ production: Sales price per unit $ 420 Variable costs per​ unit: Manufacturing $ 270 Marketing and administrative $ 100 Total fixed​ costs: Manufacturing $ 780 comma 000 Marketing and administrative $ 230 comma 000 If a special sales order is accepted for 3 comma 000 seats at a price of $ 310 per​ unit, fixed costs increase by $ 6 comma 900​, and variable marketing and administrative costs for that order are $ 2 per​ unit, how would operating income be​ affected? (NOTE: Assume regular sales are not affected by the special​ order.) A. Increase by $ 114 comma 000

Answer 1

Answer:

operating income will decrease by $192,900

Explanation:

variable costs per unit:

• manufacturing    $270
• mktg. and adm.  $102
• total                     $372

contribution margin per unit = sales price - total variable costs = $310 - $372 = -$62

if the special order is accepted, operating income will decrease by = (-$62 contribution margin per seat x 3,000 seats) - $6,900 increase in fixed costs = -$186,000 - $6,900 = -$192,900

Answer 2

Answer:

Decrease by $ 186,000

Explanation:

Variable Mfg. Cost $ 270

Variable Marketing $ 100 + increased by 2 per unid = $ 102

Total Variable $ 372

NOW Sales Price $ 310

Less Total Variable Cost 372

= Contribution Margin $ -62

Times units sold × 3000

= losses $ 186,000