Question

Pisces Company manufactures sonars for fishing boats. Model 100 sells for $400. Pisces produces and sells 7.000 units per year. Cost data are as follows: Variable manufacturing $105 per unit Variable selling and administrative $5 per unit Fixed manufacturing $280,000 per year Fixed selling and administrative $130.000 per year An offer has come in for a one-time sale of 100 units at a special price of $140 per unit. The marketing manager says that the sale will not affect the company's regular sales activities, and that will not require any variable selling and administrative costs. The production manager says that there is plenty of excess capacity and the sale will not impact fixed costs in any way. What is the effect of this deal on operating income? O A Operating income increases by $3,500 OB. Operating income increases by $500 OC. Operating income increases by 5400 OD. Operating income decreases by $3,500

Answer 1

Sales price = $140

Only variable manufacturing cost of $105 per unit is incurred on the one time sale of 100 units.

Operating income = ($140 - $105) X 100 units = $3,500

Operating income will increase by $3,500

Option A.