Luna Company makes special equipment used in cell towers. Each unit sells for $420. Luna produces and sells 12,700 units per year. They have provided the following income statement data: Traditional Format Contribution Margin Format Sales revenue $5,334,000 Sales revenue $5,334,000 Cost of goods sold 2,100,000 Variable costs: Gross profit 3,234,000 Manufacturing 900,000 Selling & admin. expenses 660,000 Selling & admin. 400,000 Contribution margin 4,034,000 Fixed costs: Manufacturing 1,200,000 Selling & admin. 260,000 Operating income $2,574,000 Operating income $2,574,000 A foreign company has offered to buy 75 units for a reduced sales price of $320 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 there is plenty of excess capacity to accommodate the deal without requiring any additional fixed costs. If Luna 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 $24,000. B. Operating income will decrease by $16,322. C. Operating income will decrease by $24,000. D. Operating income will increase by $16,322.
Luna Company makes special equipment used in cell towers. Each unit sells for $420. Luna produces and sells 12,700 units per year. They have provided the following income statement data: Traditional Format Contribution Margin Format Sales revenue $5,334,000 Sales revenue $5,334,000 Cost of goods sold 2,100,000 Variable costs: Gross profit 3,234,000 Manufacturing 900,000 Selling & admin. expenses 660,000 Selling & admin. 400,000 Contribution margin 4,034,000 Fixed costs: Manufacturing 1,200,000 Selling & admin. 260,000 Operating income $2,574,000 Operating income $2,574,000 A foreign company has offered to buy 75 units for a reduced sales price of $320 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 there is plenty of excess capacity to accommodate the deal without requiring any additional fixed costs. If Luna 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 $24,000. B. Operating income will decrease by $16,322. C. Operating income will decrease by $24,000. D. Operating income will increase by $16,322.
Chapter3: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 5EB: Cadre, Inc., sells a single product with a selling price of $120 and variable costs per unit of $90....
Related questions
Question
Luna Company makes special equipment used in cell towers. Each unit sells for
$420.
Luna produces and sells
12,700
units per year. They have provided the following income statement data:
Traditional Format
|
|
|
Contribution Margin Format
|
|
Sales revenue
|
$5,334,000
|
|
Sales revenue
|
$5,334,000
|
Cost of goods sold
|
2,100,000
|
|
Variable costs:
|
|
Gross profit
|
3,234,000
|
|
Manufacturing
|
900,000
|
Selling & admin. expenses
|
660,000
|
|
Selling & admin.
|
400,000
|
|
|
|
Contribution margin
|
4,034,000
|
|
|
|
Fixed costs:
|
|
|
|
|
Manufacturing
|
1,200,000
|
|
|
|
Selling & admin.
|
260,000
|
Operating income
|
$2,574,000
|
|
Operating income
|
$2,574,000
|
A foreign company has offered to buy
75
units for a reduced sales price of
$320
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 there is plenty of excess capacity to accommodate the deal without requiring any additional fixed costs. If Luna 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.)Operating income will increase by
$24,000.
Operating income will decrease by
$16,322.
Operating income will decrease by
$24,000.
Operating income will increase by
$16,322.
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