Centric Sail Makers Manufactures Sails for Sailboats

question 29

Multiple Choice

Centric Sail Makers manufactures 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:
- If a special sales order is accepted for 5,500 sails at a price of $150 per unit,and if the order requires both variable manufacturing and variable marketing and administrative costs,and incremental fixed costs of $400,000,what will be the impact on operating income?

• A)Operating income decreases by $385,000.
• B)Operating income decreases by $15,000.
• C)Operating income increases by $385,000.
• D)Operating income increases by $15,000.

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Definitions:

Market Share

The portion of a market controlled by a particular company or product, often expressed as a percentage of total sales in that market.

Spin-off

A type of corporate restructuring where a company creates a new independent company from its existing operations, assets, or divisions.

Divestiture

The opposite of an acquisition. That is, a company sells a portion of its assets, often a whole division, to another firm or individual.

Market Value

The current price at which an asset or service can be bought or sold in the marketplace, reflecting the value as perceived by the market participants.