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 800 units at a sale price of $52 per product? The 800 units would not require any variable selling and administrative expenses. (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 800 units at a sale price of $52 per product? The 800 units would not require any variable selling and administrative expenses. (NOTE: Assume regular sales are not affected by the special order.)

Quizplus · Accepted Answer

The variable cost per unit is $28 ($14 + $4 + $10), so the contribution margin per unit is $20 ($52 - $28). Thus, the total contribution margin for 800 units is $16,000 ($20 × 800). Since there are no variable selling and administrative expenses, the entire contribution margin will flow into operating income. Therefore, operating income will increase by $16,000.

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