Question

Belfry Company makes special equipment used in cell towers. Each unit sells for

$ 410$410.

Belfry produces and sells

12 comma 60012,600

units per year. They have provided the following income statement​ data:

Traditional Format			Contribution Margin Format
Sales revenue	​$5 comma 166 comma 0005,166,000		Sales revenue	​$5 comma 166 comma 0005,166,000
Cost of goods sold	2 comma 700 comma 0002,700,000		Variable​ costs:
Gross profit	2 comma 466 comma 0002,466,000		Manufacturing	800 comma 000800,000
Selling​ & admin. expenses	625 comma 000625,000		Selling​ & admin.	400 comma 000400,000
			Contribution margin	3 comma 966 comma 0003,966,000
			Fixed​ costs:
			Manufacturing	1 comma 900 comma 0001,900,000
			Selling​ & admin.	225 comma 000225,000
Operating income	​ $1 comma 841 comma 0001,841,000		Operating income	​$1 comma 841 comma 0001,841,000

A foreign company has offered to buy

7575

units for a reduced sales price of

$ 300$300

per unit. The marketing manager says the sale will not affect the​ company's regular sales. The sales manager says that this sale will require variable selling and administrative costs. The production manager reports that it would require an additional

$ 30 comma 000$30,000

of fixed manufacturing costs to accommodate the specifications of the buyer. If Belfry accepts the​ deal, how will this impact operating​ income? (Round any intermediate calculations to the nearest​ cent, and your final answer to the nearest​ dollar.)

A.Operating income will increase by

$ 22 comma 500$22,500.

B.Operating income will decrease by

$ 15 comma 357$15,357.

C.Operating income will decrease by

$ 14 comma 643$14,643.

Answer 1

Correct Option C i.e. Operating income will decrease by $14643
Revenue from Special Order	22,500	(75*300)
less: Cost associated with Order
Variable manufacturing cost	4,762
Variable selling and admin cost	2,381
Fixed manufacturing cost	30,000
Operating income form Order	(14,643)