Question - Gardner Sail Makers manufactures sails for sailboats. The company has the capacity to produce 36,000 sails per year and is currently producing and selling 30,000 sails per year. The following information relates to current production:
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Sales price per unit
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$182
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Variable costs per unit:
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Manufacturing
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$62
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Selling and administrative
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$20
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Total fixed costs
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Manufacturing
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$675,000
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Selling and administrative
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$250,000
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Assume that a special pricing order is accepted for 5,600 sails at a sales price of $140 per unit. This special order requires both variable manufacturing and variable selling and administrative costs, as well as incremental fixed costs of $401,000. What will be the impact on operating income?
(a) Operating income decreases by $324,800.
(b) Operating income decreases by $76,200
(c) Operating income increases by $324,800.
(d) Operating income increases by $76,200.