Figure 17-2
Wannabee Company manufactures a product with the following costs per unit at the expected production level of 84,000 units:
The company has the capacity to produce 90,000 units. The product regularly sells for $120.
-Refer to Figure 17-2. A wholesaler has offered to pay $110 a unit for 7,500 units. If the special order is accepted, the effect on operating income would be a
A) $249,000 increase.
B) $429,000 increase.
C) $495,000 increase.
D) $75,000 decrease.

Question

Figure 17-2
Wannabee Company manufactures a product with the following costs per unit at the expected production level of 84,000 units:
  The company has the capacity to produce 90,000 units. The product regularly sells for $120.
-Refer to Figure 17-2. A wholesaler has offered to pay $110 a unit for 7,500 units. If the special order is accepted, the effect on operating income would be a
A) $249,000 increase. 
B) $429,000 increase. 
C) $495,000 increase. 
D) $75,000 decrease.

Quizplus · Accepted Answer

The increase in operating income is calculated by multiplying the number of units (7,500) by the price per unit ($110), resulting in $825,000. Subtracting the cost of goods sold or any relevant costs associated with producing these units will give the net effect on operating income. Assuming the costs are $576,000 (7,500 units x $76 per unit), the increase in operating income would be $249,000 ($825,000 - $576,000).

Figure 17-2 Wannabee Company Manufactures a Product with the Following Costs Per