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Johnson Company manufactures a variety of shoes and has received a special one-time-only order directly from a wholesaler. Johnson has sufficient idle capacity to accept the special order to manufacture 15,000 pairs of sneakers at a price of $7.50 per pair. Johnson’s normal selling price is $11.50 per pair of sneakers. Variable manufacturing costs are $5.00 per pair and fixed manufacturing costs are $3.00 per pair. Johnson’s variable selling expense for its normal line of sneakers is $1.00 per pair. What would be the effect on Johnson’s operating income if the company accepted the special order? a. Decrease by $60,000 b. Increase by $22,500 c. Increase by $37,500 d. Increase by $52,500

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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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Chapter
Section
BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 25, Problem 2CMA
Textbook Problem
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Johnson Company manufactures a variety of shoes and has received a special one-time-only order directly from a wholesaler. Johnson has sufficient idle capacity to accept the special order to manufacture 15,000 pairs of sneakers at a price of $7.50 per pair. Johnson’s normal selling price is $11.50 per pair of sneakers. Variable manufacturing costs are $5.00 per pair and fixed manufacturing costs are $3.00 per pair. Johnson’s variable selling expense for its normal line of sneakers is $1.00 per pair. What would be the effect on Johnson’s operating income if the company accepted the special order?

  1. a. Decrease by $60,000
  2. b. Increase by $22,500
  3. c. Increase by $37,500
  4. d. Increase by $52,500

To determine

Identify the operating income, if Company J accepts the special order.

Explanation of Solution

Operating income: Income statement reports revenues and expenses from business operations, and the result of those operations, before taxes, other revenues and expenses, is referred to as income from operations.

Calculate the operating income, if Company J accepts the special order:

ParticularsAmount ($)
Special order price$7.50
Less: variable cost$5.00
Contribution margin$2.50

Calculate the contribution to operating income...

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Chapter 25 Solutions

Financial And Managerial Accounting
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