Voyage Sail Makers manufactures sails for sailboats. The company has the capacity to produce 37,000 sails per year and is currently producing and selling 30,000 sails per year. The following information relates to current production: Sales price per unit$185Variable costs per unit: Manufacturing$60 Selling and administrative$20Total fixed costs: Manufacturing$700,000 Selling and administrative$300,000 If a special pricing order is accepted for 5,700 sails at a sales price of $170per 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.)

The relevant cost for special order are only the Variable manufacturing costs since no additional fixed costs will be incurred on the order and no variable selling and admin expenses will be incurredOperating income will increase by $513,000 by accepting special order Calculation of change is operating income : Revenue from special order [5700 x $170 ] $ 969,000 Less: variable costs Manufacturing [ 5700 x $60 ] $342,000 Selling and administrative [ 5700 x $20 ] $ 114,000 Increase /(decrease) in operating income $ 513,000

Answered: Voyage Sail Makers manufactures sails…

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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Voyage Sail Makers manufactures sails for sailboats. The company has the capacity to produce 37,000 sails per year and is currently producing and selling 30,000 sails per year. The following information relates to current production:

Sales price per unit	$185
Variable costs per unit:
Manufacturing	$60
Selling and administrative	$20
Total fixed costs:
Manufacturing	$700,000
Selling and administrative	$300,000

If a special pricing order is accepted for 5,700 sails at a sales price of $170
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.)

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