Harmony Forge manufactures saddles for show horses.The company has received a special order for 290 saddles for an international competition.Each of these saddles would include the specialized logo of the competition.Last year Harmony produced 710 saddles, and the company has the capacity to produce 1,000 saddles per year.Harmony's saddles normally sell for $650 each, but the special offer is for $179,800 ($620 per saddle).The controller has provided information to management that estimates the variable cost per saddle is $435; fixed manufacturing overhead is $60/saddle.Of the fixed costs assigned to this special order, $15,950 is for the specialized logos, the remainder is attributable to costs that will be incurred regardless of whether the special order is produced.What is the operating income generated by the special order?
A)$53,650
B)$37,700
C)$36,250
D)$20,300

Question

Quizplus · Accepted Answer

The operating income is calculated by subtracting the total costs from the total revenue of the special order. Total revenue from the special order is 290 saddles * $620 = $179,800. The total variable cost is 290 saddles * $435 = $126,150. The fixed costs specific to the order are $15,950. Therefore, the total cost is $126,150 + $15,950 = $142,100. The operating income is $179,800 - $142,100 = $37,700.

Harmony Forge Manufactures Saddles for Show Horses