Question

Sky High Seats manufactures seats for airplanes. The company has the capacity to produce? 100,000 seats per? year, but is currently produces and sells? 75,000 seats per year. The following information relates to current production of? seats:
Sale price per unit

?$400

Variable costs per? unit:

Manufacturing

?$220

Marketing and administrative

?$50

Total fixed? costs:

Manufacturing

?$750,000

Marketing and administrative

?$200,000

If a special sales order is accepted for? 2,500 seats at a price of? $320 per? unit, fixed costs increase by? $5,000, and variable marketing and administrative costs for that order are? $25 per? unit, how would operating income be? affected? (NOTE: Assume regular sales are not affected by the special? order.)

Answer 1

Answer:

Increase in Income= $232,500

Explanation:

Giving the following information:

If a special sales order is accepted for 2,500 seats for $320 per unit, fixed costs increase by $5,000, and variable marketing and administrative costs for that order are $25 per unit.

Variable costs per unit:

Manufacturing= $220

Mkt and administrative=25

Total= 225

Fixed costs= 5,000

Increase in Income= 2,500*320 - 225*2500 - 5000= $232,500