Question

Faux Trees Company produces artificial Christmas trees. A local shopping mall recently made a special order offer; the shopping mall would like to purchase 230 extra-large white trees. Faux Trees Company is currently producing and selling 20,000 trees; the company has the excess capacity to handle this special order. The shopping mall has offered to pay $160 for each tree. An accountant at Faux Trees Company provides an estimate of the unit product cost as follows This special order would require an investment of $5000 for the molds required for the extra-large trees. These molds would have no other purpose and would have no salvage value. The special order trees would also have an additional variable cost of $6.03 per unit associated with having a white tree. This special order would not have any effect on the company's other sales. If the special order is accepted, the company's operating income would increase (decrease) by

Answer 1

Answer:

operating income increase by 30,413 dollars

Explanation:

We will calculate the income as usuall revenues - expense

We aren't given with other manufacturing cost so we assume this are all the cost involved in the order:

Special Order Revenue: 230 trees at $160 each: 36,800

Special Order Cost:

mold cost:                                                 5,000

variable cost: 230 trees x 6.03 dollars = 1,387

Total cost for the order:                            6,387

Financial outcome:     36,800 - 6,387 =  30,413