Sky High Seats manufactures seats for airplanes.The company has the capacity to produce 100,000 seats per year,but is currently produces and sells 75,000 seats per year.The following information relates to current production of seats:

If a special sales order is accepted for 2,500 seats at a price of $320 per unit,fixed costs increase by $5,000,and variable marketing and administrative costs for that order are $25 per unit,how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order. )

Question

Sky High Seats manufactures seats for airplanes.The company has the capacity to produce 100,000 seats per year,but is currently produces and sells 75,000 seats per year.The following information relates to current production of seats:

If a special sales order is accepted for 2,500 seats at a price of $320 per unit,fixed costs increase by $5,000,and variable marketing and administrative costs for that order are $25 per unit,how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order. )

Quizplus · Accepted Answer

C)
Variable Mfg.Cost $220
Variable Marketing $25
Total Variable $245
Now
Sales Price $320
Less Total Variable Cost 245
= Contribution Margin $75
Times units sold × 2,500
= Contribution Margin $187,500
Less: add'l fixed cost 5,000
= Add'l Profit $182,500

Sky High Seats Manufactures Seats for Airplanes