The Following Information Relates to Current Production of Outdoor Chaise

question 87

Multiple Choice

The following information relates to current production of outdoor chaise lounges at Backyard Posh: The regular selling price per chaise lounge is $280. The company is analyzing the opportunity to accept a special sales order for 900 chaise lounge at a price of $210 per unit. Fixed costs would remain unchanged. The company has the capacity to produce 65,000 chaise lounges per year, but is currently producing and selling 9000 chaise lounges per year. The 900 units would not require any variable marketing and administrative expenses. Regular sales will not be affected by the special order. If the company were to accept this special order, how would operating income be affected?

• A)Decrease by $63,900
• B)Decrease by $95,400
• C)Increase by $63,900
• D)Increase by $95,400

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Definitions:

Profit Centers

Parts of an organization that directly add to its profit through their activities, treated as separate entities for financial management purposes.

Divisional Income Statements

Financial statements that show the revenue, expenses, and profit for each division or segment of a company separately.

Income from Operations

The profit generated from the core business activities of a company, excluding revenues and expenses from non-operational activities like financing or investments.

Payroll Cost

Expenses associated with compensating employees, including wages, salaries, and benefits.