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

question 84

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: $\begin{array}{|l|l|}\hline \text { Sale price per unit } & \$ 175 \\\hline \text { Variable costs per unit: } & \\\hline \text { Manufacturing } & 60 \\\hline \text { Marketing and administrative } &20 \\\hline \text { Total fixed costs: } & \\\hline \text { Manufacturing } & \$ 700,000 \\\hline \text { Marketing and administrative } &\$ 300,000\\\hline\end{array}$
-If a special sales order is accepted for 5,500 sails at a price of $150 per unit, fixed costs remain unchanged, and there are no variable marketing and administrative costs for this order, what is the change in operating income?

• A) Operating income decreases by $385,000.
• B) Operating income decreases by $495,000.
• C) Operating income increases by $385,000.
• D) Operating income increases by $495,000.

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Definitions:

Wholesaler

A wholesaler is an intermediary entity in the distribution process that buys bulk quantities of goods from manufacturers and sells them to retailers or professional buyers.

Consumers

Individuals or groups that purchase goods and services for personal use.

Service Company

A business entity that provides professional services or expertise instead of physical goods.

Net Income

The total earnings of a company after subtracting all expenses, taxes, and costs from its total revenue.