Question

Maritime Sail Makers manufactures sails for sailboats. The company has the capacity to produce 37 comma 000 sails per year and is currently producing and selling 25 comma 000 sails per year. The following information relates to current​ production: Sales price per unit $ 185 Variable costs per​ unit: Manufacturing $ 60 Selling and administrative $ 20 Total fixed​ costs: Manufacturing $ 700 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, fixed costs remain​ unchanged, and there are no variable selling and administrative costs for this​ order, what is the change in operating​ income?

Answer 1

Answer:

Increase in operating income  = $456,000

Explanation:

According to the scenario, computation of the given data are as follow:-

                 Operating Income Statement

Particular                             Existing         New order       Total  

Current selling                     25,000             5,700             30,700

Selling price per unit                $185                    $160  

Manufacturing variable cost per unit $60            $60  

Selling and administrative variable cost per unit $20  $20  

Contribution margin per unit(CMPU)= $105     $80  

(sale price - variable cost)

Contribution margin                 $2,625,000   $456,000 $3,081,000

(sale units × CMPU)

Manufacturing fixed cost         $700,000   $700,000

Selling and administrative fixed cost $250,000  $250,000

Net operating income                $1,675,000  $2,131,000

So, Difference in net income are as follows:

Increase in operating income = $2,131,000 - $1,675,000

= $456,000