High Seas Sail Makers Manufactures Sails for Sailboats If a Special Pricing Order Is Accepted for 5,700 Sails

question 25

Multiple Choice

High Seas Sail Makers manufactures sails for sailboats.The company has the capacity to produce 36,000 sails per year and is currently producing and selling 25,000 sails per year.The following information relates to current production: $$\begin{array} { | l | r | } \hline \text { Sales price per unit } & \$ 175 \\\hline \text { Variable costs per unit: } & \\\hline \text { Manufacturing } & \$ 50 \\\hline \text { Selling and administrative } & \$ 10 \\\hline \text { Total fixed costs: } & \\\hline \text { Manufacturing } & \$ 700,000 \\\hline \text { Selling and administrative } & \$ 250,000 \\\hline\end{array}$$ If a special pricing order is accepted for 5,700 sails at a sales price of $170 per unit,fixed costs remain unchanged,and there are no variable selling and administrative costs for this order,what is the change in operating income?

• A)Operating income decreases by $627,000.
• B)Operating income decreases by $684,000.
• C)Operating income increases by $627,000.
• D)Operating income increases by $684,000.

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Definitions:

Bankruptcy

A legal proceeding involving a person or business that is unable to repay outstanding debts, leading to asset liquidation or reorganization.

Accounting Fees

are the costs incurred by businesses or individuals for the services provided by accountants or accounting firms, which may include audits, financial analysis, and tax preparation.

Indirect Cost

Expenses not directly tied to the production of goods or services but necessary for the operation, such as utilities or administrative salaries.

Bankruptcy

A legal proceeding involving a person or business that is unable to repay outstanding debts.