1. The Fresh Company manufactures slippers and sells them at $9 a pair. Variable manufacturing cost is $3.00 a pair, and allocated fixed manufacturing cost is $0.50 a pair. It has enough idle capacity available to accept a one-time-only special order of 5,000 pairs of slippers at $3.50 a pair. Fresh will not incur any marketing costs as a result of the special order. What would the effect on operating income be if the special order could be accepted without affecting normal sales: (a) $0, (b) $2,500 increase, (c) $15,000 increase, or (d) $17,500 increase? Show your calculations.

1. The Fresh Company manufactures slippers and sells them at $9 a pair. Variable manufacturing cost is $3.00 a pair, and allocated fixed manufacturing cost is $0.50 a pair. It has enough idle capacity available to accept a one-time-only special order of 5,000 pairs of slippers at $3.50 a pair. Fresh will not incur any marketing costs as a result of the special order. What would the effect on operating income be if the special order could be accepted without affecting normal sales: (a) $0, (b) $2,500 increase, (c) $15,000 increase, or (d) $17,500 increase? Show your calculations.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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