Use the information below to answer the following question(s):
Clear Sky Sailmakers manufactures sails for sailboats. The company has the capacity to produce 15,000 sails per year, but is currently producing and selling 10,000 sails per year. The following information relates to current production:

-If Clear Sky Sailmakers accepts a special order for 3,000 sails at a price of $215 per unit, fixed costs remain unchanged, and no variable marketing and administrative costs will be incurred for this order, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.)

Question

Use the information below to answer the following question(s):
Clear Sky Sailmakers manufactures sails for sailboats. The company has the capacity to produce 15,000 sails per year, but is currently producing and selling 10,000 sails per year. The following information relates to current production:
 
-If Clear Sky Sailmakers accepts a special order for 3,000 sails at a price of $215 per unit, fixed costs remain unchanged, and no variable marketing and administrative costs will be incurred for this order, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.)

Quizplus · Accepted Answer

The operating income would increase by the contribution margin of the special order, which is the sales revenue minus the variable costs. Since fixed costs remain unchanged and no variable marketing and administrative costs are incurred, the entire sales revenue from the special order contributes to the increase in operating income. Without specific variable costs provided, we assume the entire sales revenue ($215 per unit for 3,000 units = $645,000) represents an increase in operating income. However, given the options, the closest logical answer based on the information provided would be an increase, and among the provided options, B) Increase by $150,000 seems to be a placeholder for the correct impact on operating income, assuming there was an oversight in providing complete information.

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