Centric Sail Makers Manufactures Sails for Sailboats If a Special Pricing Order Is Accepted for 5,600 Sails

question 68

Multiple Choice

Centric Sail Makers manufactures sails for sailboats.The company has the capacity to produce 36,000 sails per year and is currently producing and selling 30,000 sails per year.The following information relates to current production: $$\begin{array} { | l | r | } \hline \text { Sales price per unit } & \$ 185 \\\hline \text { Variable costs per unit: } & \\\hline \text { Manufacturing } & \$ 60 \\\hline \text { Selling and administrative } & \$ 20 \\\hline \text { Total fixed costs: } & \\\hline \text { Manufacturing } & \$ 675,000 \\\hline \text { Selling and administrative } & \$ 300,000 \\\hline\end{array}$$ If a special pricing order is accepted for 5,600 sails at a sales price of $150 per unit,and fixed costs remain unchanged,what is the change in operating income? (Assume the special pricing order will require variable manufacturing costs and variable selling and administrative costs.)

• A) Operating income decreases by $840,000.
• B) Operating income increases by $840,000.
• C) Operating income decreases by $392,000.
• D) Operating income increases by $392,000.

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