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 1,200 units at a sale price of $60 per product assuming additional fixed manufacturing overhead costs of $5,000 is incurred? (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 1,200 units at a sale price of $60 per product assuming additional fixed manufacturing overhead costs of $5,000 is incurred? (NOTE: Assume regular sales are not affected by the special order.)

Quizplus · Accepted Answer

The contribution margin per unit is calculated as Sale Price - Variable Costs = $100 - $40 - $12 - $5 = $43. 
The total contribution margin of the special order would be 1,200 units x $43 = $51,600. 
The additional fixed manufacturing overhead costs of $5,000 would be incurred regardless of whether the special order is accepted. 
Therefore, the total increase in operating income would be $51,600 - $5,000 = $46,600.

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