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The Cozy Company manufactures slippers and sells them at $10 a pair. Variable manufacturing cost is $5.75 a pair, and allocated fixed manufacturing cost is $1.75 a pair. It has enough idle capacity available to accept a one-time-only special order of 25,000 pairs of slippers at $7.50 a pair. Cozy will not incur any marketing costs as a result of the special order. What would the effect on operating income be if the special order could be accepted without affecting normal sales: (a) $0, (b) $43,750 increase (c) $143,750 increase, or (d) $187,500 increase? Show your calculations.

The Cozy Company manufactures slippers and sells them at $10 a pair. Variable manufacturing cost is $5.75 a pair, and allocated fixed manufacturing cost is $1.75 a pair. It has enough idle capacity available to accept a one-time-only special order of 25,000 pairs of slippers at $7.50 a pair. Cozy will not incur any marketing costs as a result of the special order. What would the effect on operating income be if the special order could be accepted without affecting normal sales: (a) $0, (b) $43,750 increase (c) $143,750 increase, or (d) $187,500 increase? Show your calculations.

Managerial Accounting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter11: Differential Analysis And Product Pricing
Section: Chapter Questions
Problem 2CMA
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The Cozy Company manufactures slippers and sells them at $10 a pair. Variable manufacturing cost is $5.75 a pair, and allocated fixed manufacturing cost is $1.75 a pair. It has enough idle capacity available to accept a one-time-only special order of 25,000 pairs of slippers at $7.50 a pair. Cozy will not incur any marketing costs as a result of the special order. What would the effect on operating income be if the special order could be accepted without affecting normal sales:

(a) $0,

(b) $43,750 increase

(c) $143,750 increase, or

(d) $187,500 increase?

Show your calculations.

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