Johnson Company manufactures a variety of shoes, and has received a special onetime-only order directly from a wholesaler. Johnson has sufficient idle capacity to accept the special order to manufacture 15,000 pairs of sneakers at a price of $7.50 per pair. Johnson's normal selling price is $11.50 per pair of sneakers. Variable manufacturing costs are $5 per pair and fixed manufacturing costs are $3 a pair. Johnson's variable selling expense for its normal line of sneakers is $1 per pair. What would the effect on Johnson's operating income be if the company accepted the special order?

Question

Quizplus · Accepted Answer

The contribution margin per pair for the special order is $7.50 (selling price) - $5 (variable manufacturing cost) = $2.50. Since fixed costs are not relevant (they do not change with the order), the increase in operating income is 15,000 pairs x $2.50 = $37,500.

Johnson Company Manufactures a Variety of Shoes, and Has Received