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Monroe Hardware manufactures high end saws. The company has the capacity to produce 100,000 saws per...

Monroe Hardware manufactures high end saws. The company has the capacity to produce 100,000 saws per year, but currently produces and sells 75,000 saws per year. The selling price of each saw is $400, and variable costs are $240 for manufacturing (product) costs and $70 for marketing and administrative (period) costs. The total fixed manufacturing costs are $760,000 and the total marketing and administrative fixed costs are $230,000.

They have an opportunity to accept a special order for 7,400 seats at a price of $350 per unit. Fixed costs will remain unchanged. How would operating income be affected?

It would increase/ It would decrease

It would increase or decrease by how much?
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Answer #1
Calculation of operating income
Sale price (a) 350
Variable cost p.u (240+70) (b) 310
Contribution p.u (a)-(b) 40
Contribution (7400*40) 296000
Therefore it would increase
it would increase by $296000
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