Use the information below to answer the following question(s):
Woodson Corporation provided the following information regarding its only product:

-Assuming there is excess capacity at Woodson Corporation, what would be the effect on operating income of accepting a special order for 1,000 units at a sale price of $55 per product? (NOTE: Assume regular sales are not affected by the special order.)

Question

Use the information below to answer the following question(s):
Woodson Corporation provided the following information regarding its only product:
 
-Assuming there is excess capacity at Woodson Corporation, what would be the effect on operating income of accepting a special order for 1,000 units at a sale price of $55 per product? (NOTE: Assume regular sales are not affected by the special order.)

Quizplus · Accepted Answer

Since there is excess capacity, the variable cost of producing the additional 1,000 units would be the only additional cost incurred, which is $35 per unit. Therefore, the contribution margin per unit from the special order would be $20 ($55 selling price - $35 variable cost). Thus, the total increase in operating income would be $20,000 ($20 contribution margin per unit x 1,000 units). However, there would be no change in fixed costs, resulting in a net increase in operating income of $1,500 ($20,000 increase in contribution margin - $18,500 increase in total costs).

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