Wisconsin Company has a current production capacity level of 200,000 units per month.At this level of production,variable costs are $1.00 per unit and fixed costs are $0.50 per unit.Current monthly sales are 164,500 units.Gates Company has contacted Wisconsin Company about purchasing 20,000 units at $2.00 each.Current sales would not be affected by the special order and no additional fixed costs would be incurred on the special order.Variable costs would increase $0.10 per unit with the special order.If the order is accepted,what is Wisconsin Company's increase in operating income?
A) $8,000
B) $18,000
C) $20,000
D) $24,000

Question

Quizplus · Accepted Answer

The increase in operating income can be calculated by subtracting the additional variable costs from the revenue generated by the special order. The revenue from the special order is 20,000 units * $2.00 = $40,000. The variable cost per unit increases by $0.10 to $1.10, making the total variable cost for the special order 20,000 units * $1.10 = $22,000. The increase in operating income is $40,000 - $22,000 = $18,000.

Wisconsin Company Has a Current Production Capacity Level of 200,000