#meta manufactures yoga props such as straps and blocks. Straps are sold to customers at a price of $18 per strap. The company currently produces 36,000 straps a year, which is 80% of full capacity. The company does not maintain any safety stock and only produces the exact number of straps it sells. At the current operating level, the following total costs are incurred: Product Costs $136,800 Period Costs $41,400 Of the total product costs, $93,600 are variable costs. Of the total period costs, $25,200 are variable costs. An order has been received from a chain of yoga studios for 10,000 straps at a special price of $15 per strap. If the special order is accepted, the unit variable manufacturing costs will decrease by $0.20 per strap due to the type of buckle used. A different supplier will be used for the buckles and therefore a new supplier contract has to be drafted by the company's outside attorney. The attorney's fee is estimated to be $1,000. Variable period costs consist solely of sales commissions, which will not be paid on the special order. No other costs will be affected by acceptance of the special order. By how much will operating income increase if the special order is accepted? A. $95,000 B. $105,800 C. $110,300 D. $98,800 E. None of the above.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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#meta manufactures yoga props such as straps and blocks. Straps are sold to customers at a price of $18 per strap. The company currently produces 36,000 straps a year, which is 80% of full capacity. The company does not maintain any safety stock and only produces the exact number of straps it sells.

At the current operating level, the following total costs are incurred:

Product Costs	$136,800
Period Costs	$41,400

Of the total product costs, $93,600 are variable costs. Of the total period costs, $25,200 are variable costs.

An order has been received from a chain of yoga studios for 10,000 straps at a special price of $15 per strap. If the special order is accepted, the unit variable manufacturing costs will decrease by $0.20 per strap due to the type of buckle used. A different supplier will be used for the buckles and therefore a new supplier contract has to be drafted by the company's outside attorney. The attorney's fee is estimated to be $1,000. Variable period costs consist solely of sales commissions, which will not be paid on the special order. No other costs will be affected by acceptance of the special order.

By how much will operating income increase if the special order is accepted?

$95,000

$105,800

$110,300

$98,800

None of the above.

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