Question

Widget Inc. manufactures widgets. The company has the capacity to produce? 100,000 widgets per? year, but...

Widget Inc. manufactures widgets. The company has the capacity to produce? 100,000 widgets per? year, but it currently produces and sells? 75,000 widgets per year. The following information relates to current? production:

Sales price per unit

$ $45

Variable costs per? unit:

Manufacturing

$25

Marketing and administrative

$5

Total fixed? costs:

Manufacturing

$79,000

Marketing and administrative

$20,000

If a special sales order is accepted for 7,000 widgets at a price of $37 per? unit, and fixed costs remain? unchanged, how would operating income be? affected? (NOTE: Assume regular sales are not affected by the special? order.)

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Answer #1

Operating income will increase by 49,000

Special Order
Sales (7000*37)          259,000.00
Less: Variable Cost:
Manufacturing(7000*25)          175,000.00
Marketing and administrative(7000*5)             35,000.00
Additional Operating income             49,000.00


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