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 2,000 sails at a price of $220 per unit, and fixed costs increase by $7,000, 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 2,000 sails at a price of $220 per unit, and fixed costs increase by $7,000, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.)

Quizplus · Accepted Answer

The contribution margin per unit would be the selling price minus variable costs so:
$220 - $180 = $40
So the total contribution margin for the special order would be:
$40 × 2,000 = $80,000
Since the fixed costs would increase by $7,000, the operating income will increase by:
$80,000 - $7,000 = $73,000
Therefore, operating income would increase by $3,000 ($73,000 - $70,000) from the current level of $70,000 when the special order is accepted.

Use the Information Below to Answer the Following Question(s)