Centric Sail Makers Manufacture Sails for Sailboats - Fixed Manufacturing Costs Increase by $100,000 for Every 500

question 106

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: $\begin{array}{|l|l|}\hline \text { Sale price per unit } & \$ 175 \\\hline \text { Variable costs per unit: } & \\\hline \text { Manufacturing } & 60 \\\hline \text { Marketing and administrative } &20 \\\hline \text { Total fixed costs: } & \\\hline \text { Manufacturing } & \$ 700,000 \\\hline \text { Marketing and administrative } &\$ 300,000\\\hline\end{array}$
- Fixed manufacturing costs increase by $100,000 for every 500 units produced beyond the maximum capacity of the plant. If a special sales order is accepted for 5,500 sails at a price of $150 per unit, and if the order requires no variable and fixed marketing and administrative costs, what will be the effect on operating income?

• A) Operating income increases $395,000.
• B) Operating income decreases $395,000.
• C) Operating income increases $385,000.
• D) Operating income decreases $385,000.

---

Definitions:

Virtual Communication

Exchanging information and ideas through electronic means without physical presence.

Deceptive Tactics

Involves the employment of strategies designed to mislead, trick, or manipulate others for a perceived benefit.

Withholding Information

The act of intentionally not sharing relevant or necessary information with others who might benefit from knowing it.

Bluffing

A strategic deception or misrepresentation intended to make others believe something is true when it is not.