Problem 1: Lowwater Sailmakers manufactures sails for sailboats. The company has the capacity to produce 25,000 sails per year, and is currently producing and selling 20,000 sails per year. The following information relates to current production:
Sale price per unit $150
Variable costs per unit:
Manufacturing $55
Marketing and administrative $25
Total fixed costs:
Manufacturing $640,000
Marketing and administrative $280,000
Problem 2: If a special sales order is accepted for 5,000 sails at a price of $125 per unit, and fixed costs remain unchanged, what is the change in operating income?
a. Operating income decreases $5,000
b. Operating income increases $190,000
c. Operating income decreases $125,000.
d. Operating income increases $225,000.