Perfect Time Company manufactures and sells watches. Great Products Company has offered Perfect Time $21 per watch for 5,000 watches. Perfect Time's normal selling price is $36 per watch. The total manufacturing cost per watch is $24 and consists of variable costs of $18 per watch and fixed overhead costs of $6 per watch. What is the change in operating income assuming that 2,000 units of sales to regular customers will have to be given up?

Question

Quizplus · Accepted Answer

The change in operating income is calculated by considering the loss from regular sales and the gain from the special order. The loss from regular sales is 2,000 units x ($36 - $24) = $24,000. The gain from the special order is 5,000 units x ($21 - $18) = $15,000. The net change is $15,000 - $24,000 = ($9,000).

Perfect Time Company Manufactures and Sells Watches