Mobile Concepts Makes Special Equipment Used in Cell Towers A Foreign Company Has Offered to Buy 100 Units for Sells

question 199

Multiple Choice

Mobile Concepts makes special equipment used in cell towers.Each unit sells for $400.Mobile Concepts uses just-in-time inventory procedures; it produces and sells 12,500 units per year.It has provided the following income statement data: $\begin{array}{|l|c|c|c|}\hline \textbf { Traditional Format } & & \textbf { Contribution Margin Format } & \\\hline \text { Sales revenue } & \$ 5,000,000 & \text { Sales revenue } & \$ 5,000,000 \\\hline \text { Cost of goods sold } & \underline{3,100,000} & \text { Variable costs: } & \\\hline \text { Gross profit } & 1,900,000 & \text { Manufacturing } & 1,200,000 \\\hline \text { Selling \& admin, expenses } & \underline{770,000} & \text { Selling \& admin. } & \underline{\text { 500,000 }} \\\hline & & \text { Contribution margin } & 3,300,000 \\\hline & & \text { Fixed costs: } & \\\hline & & \text { Manufacturing } & 1,900,000 \\\hline & & \text { Selling \& admin. } & \underline{270,000} \\\hline \text { Operating income } & \underline{\$ 1,130,000} & \text { Operating income } & \underline{\$1,130,000}_{} \\\hline\end{array}$ A foreign company has offered to buy 100 units for a reduced sales price of $250 per unit.The marketing manager says the sale will have no negative impact on the company's regular sales.The sales manager says that this sale will not require any variable selling and administrative costs.The production manager reports that there is plenty of excess capacity to accommodate the deal without requiring any additional fixed costs.If Mobile Concepts accepts the deal,how will this impact operating income? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar.)

• A)Operating income will increase by $15,400.
• B)Operating income will decrease by $15,400.
• C)Operating income will increase by $25,000.
• D)Operating income will decrease by $25,000.

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