Pisces Company manufactures sonars for fishing boats. Model 100 sells for $400. Pisces produces and sells 5,000 units per year. Cost data are as follows: Variable manufacturing Variable selling and administrative Fixed manufacturing Fixed selling and administrative $100 per unit S6 per unit $270,000 per year $130,000 per year An offer has come in for a one-time sale of 300 units at a special price of $120 per unit. The marketing manager says that the sale will not affect the company's regular sales activities, and that it will not require any variable selling and administrative costs. The production manager says that there is plenty of excess capacity and the sale will not impact fixed costs in any way. What is the effect of this deal on operating income? O A. Operating income increases by $400. O B. Operating income increases by $1,800. OC. Operating income increases by $6,000. O D. Operating income decreases by S6,000.

Pisces Company manufactures sonars for fishing boats. Model 100 sells for $400. Pisces produces and sells 5,000 units per year. Cost data are as follows: Variable manufacturing Variable selling and administrative Fixed manufacturing Fixed selling and administrative $100 per unit S6 per unit $270,000 per year $130,000 per year An offer has come in for a one-time sale of 300 units at a special price of $120 per unit. The marketing manager says that the sale will not affect the company's regular sales activities, and that it will not require any variable selling and administrative costs. The production manager says that there is plenty of excess capacity and the sale will not impact fixed costs in any way. What is the effect of this deal on operating income? O A. Operating income increases by $400. O B. Operating income increases by $1,800. OC. Operating income increases by $6,000. O D. Operating income decreases by S6,000.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter16: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 2CE

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Dimitri Designs has capacity to produce 30,000 desk chairs per year and is currently selling all 30,000 for $240 each. Country Enterprises has approached Dimitri to buy 800 chairs for $210 each. Dimitris normal variable cost is $165 per chair, including $50 per unit in direct labor per chair. Dimitri can produce the special order on an overtime shift, which means that direct labor would be paid overtime at 150% of the normal pay rate. The annual fixed costs will be unaffected by the special order and the contract will not disrupt any of Dimitris other operations. What will be the impact on profits of accepting the order?
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