Comfort Cloud manufactures seats for airplanes. The company has the capacity to produce 100,000 seats per year, but currently produces and sells 75,000 seats per year. The following information relates to current production: Sales price per unit $ 420 Variable costs per unit: Manufacturing $ 270 Marketing and administrative $ 100 Total fixed costs: Manufacturing $ 780 comma 000 Marketing and administrative $ 230 comma 000 If a special sales order is accepted for 3 comma 000 seats at a price of $ 310 per unit, fixed costs increase by $ 6 comma 900 , and variable marketing and administrative costs for that order are $ 2 per unit, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.) A. Increase by $ 114 comma 000

Question

Lilliana Bradshaw

Business

8 August, 16:45

Comfort Cloud manufactures seats for airplanes. The company has the capacity to produce 100,000 seats per year, but currently produces and sells 75,000 seats per year. The following information relates to current production: Sales price per unit $ 420 Variable costs per unit: Manufacturing $ 270 Marketing and administrative $ 100 Total fixed costs: Manufacturing $ 780 comma 000 Marketing and administrative $ 230 comma 000 If a special sales order is accepted for 3 comma 000 seats at a price of $ 310 per unit, fixed costs increase by $ 6 comma 900 , and variable marketing and administrative costs for that order are $ 2 per unit, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.) A. Increase by $ 114 comma 000

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Answers (2)

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Bria Cantu · Answer 1

Decrease by $ 186,000

Explanation:

Variable Mfg. Cost $ 270

Variable Marketing $ 100 + increased by 2 per unid = $ 102

Total Variable $ 372

NOW Sales Price $ 310

Less Total Variable Cost 372

= Contribution Margin $ - 62

Times units sold * 3000

= losses $ 186,000

Jerry Conner · Answer 2

operating income will decrease by $192,900

Explanation:

variable costs per unit:

manufacturing $270 mktg. and adm. $102 total $372

contribution margin per unit = sales price - total variable costs = $310 - $372 = - $62

if the special order is accepted, operating income will decrease by = (-$62 contribution margin per seat x 3,000 seats) - $6,900 increase in fixed costs = - $186,000 - $6,900 = - $192,900