Centric Sail Makers Manufacture Sails for Sailboats If a Special Sales Order Is Accepted for 5,500 Sails

question 153

Multiple Choice

Centric Sail Makers manufacture sails for sailboats. The company has the capacity to produce 35,000 sails per year, and is currently producing and selling 25,000 sails per year. The following information relates to current production: $$\begin{array} { | l | r | } \hline \text { Sale price per unit } & \$ 175 \\\hline \text { Variable costs per unit: } & \\\hline \text { Manufacturing } & 60 \\\hline \text { Marketing and administrative } & 20 \\\hline \text { Total fixed costs: } & \\\hline \text { Manufacturing } & \$ 700,000 \\\hline \text { Marketing and administrative } & \$ 300,000 \\\hline\end{array}$$ If a special sales order is accepted for 5,500 sails at a price of $150 per unit, and fixed costs remain unchanged, what is the change in operating income? (Assume the special sales order will require variable manufacturing costs and variable marketing and administrative costs.)

• A) Operating income decreases by $825,000.
• B) Operating income increases by $825,000.
• C) Operating income decreases by $385,000.
• D) Operating income increases by $385,000.

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