Question

Use the information below to answer the following question(s): Clear Sky Sailmakers manufactures sails for sailboats. The company has the capacity to produce 15,000 sails per year, but is currently producing and selling 10,000 sails per year. The following information relates to current production: Sale price per unit $250 Variable costs per unit: Manufacturing Marketing and administrative $165 $50 Total fixed costs: Manufacturing Marketing and administrative $750,000 $200,000 3. If Clear Sky Sailmakers accepts a special order for 5,000 sails at a price of $225 per unit, and fixed costs remain unchanged, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.) a. Increase by $1,125,000 b. Increase by $50,000 c. Decrease by $50,000 d. Increase by $150,000 4. Clear Sky Sailmakers accepts a special order for 3,000 sails at a price of $215 per unit, fixed costs remain unchanged, and no variable marketing and administrative costs will be

Answer 1

Answer is given below for Q.No.3

3 Answer is Option b) Increase by $50,000 Total per unit 5,000 $1,125,000 $225 Total units Sales Less: Variable cost Manufacturing Marketing and administrative Contribution $165 $825,000 $250,000 $50,000 $10 Incremental profit $50,000