Sundial Company manufactures and sells watches for $40 each.Tick-Tock Company has offered Sundial $30 per watch for a one-time order of 5900 watches.The total manufacturing cost per watch is $30 per unit and consists of variable costs of $22 per watch and fixed overhead costs of $8 per watch.Assume that Sundial has excess capacity and that the special pricing order would not adversely affect regular sales.What is the change in operating income that would result from accepting the special sales order?

Question

Quizplus · Accepted Answer

- The revenue from the special sales order would be: $30 x 5900 = $177,000
- The total variable costs for producing 5900 watches would be: $22 x 5900 = $129,800
- The total fixed costs for producing 5900 watches would be: $8 x 5900 = $47,200
- The total cost for producing 5900 watches would be: $129,800 + $47,200 = $177,000
- The operating income (profit) would be: Revenue - Total Cost = $177,000 - $177,000 = $0
- Therefore, accepting the special sales order would not result in a change in operating income. However, it would still be beneficial to accept the order as it would cover the fixed overhead costs and generate additional revenue.

Sundial Company Manufactures and Sells Watches for $40 Each