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 30 comma 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 $ 10 Total fixed​ costs: Manufacturing $ 675 comma 000 Selling and administrative $ 250 comma 000 If a special pricing order is accepted for 5 comma 500 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 income= $550,000

Explanation:

Giving the following information:

Variable costs per​ unit:

Manufacturing $60

If a special pricing order is accepted for 5,500 sails at a sales price of $ 160 per​ unit

Because there is no change in the fixed costs and there are no variable selling and administrative costs, the effect on income will be equal to the change in total contribution margin.

Total contribution margin= number of units* (selling price - unitary variable cost

Total contribution margin change= 5,500* (160 - 60)= $550,000

Increase in income= $550,000