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

question 105

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, 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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