Suppose that regular sales of jigs total 85,000 units per month.All other conditions remain the same.If Immanuel accepts the special order,the change in monthly operating income will be?
A) $3,600 decrease.
B) $5,400 decrease.
C) $7,200 increase.
D) $14,400 increase.

Question

Quizplus · Accepted Answer

The contribution margin per unit for the special order is $80 - $50 = $30.

If the regular sales of jigs total 85,000 units per month and the special order is for 18,000 units, the new total sales would be 103,000 units.

The total contribution margin for regular sales would be ($50 - $30) x 85,000 = $1,700,000.

The total contribution margin for the special order would be $30 x 18,000 = $540,000.

The total contribution margin for both regular sales and the special order would be $1,700,000 + $540,000 = $2,240,000.

If the fixed costs remain the same at $1,500,000, then the new monthly operating income would be $740,000 ($2,240,000 - $1,500,000).

This represents an increase in monthly operating income of ($740,000 - $560,000) = $180,000 compared to not accepting the special order.

Therefore, the answer is C) $7,200 increase.

Suppose That Regular Sales of Jigs Total 85,000 Units Per