If Fuller accepts the special order, by how much will operating income increase or decrease?
A) $14,400 increase
B) $12,000 decrease
C) $12,000 increase
D) $21,600 increase
E) There will be no effect on operating income.

Question

Quizplus · Accepted Answer

To find the effect of the special order on operating income, we need to calculate the incremental revenue and incremental costs associated with it.

Incremental Revenue = Sales price per unit on special order x Number of units in special order
= $80 x 600 = $48,000

Incremental Costs = Variable costs per unit on special order x Number of units in special order
= $24 x 600 = $14,400

Contribution Margin = Incremental Revenue – Incremental Costs
= $48,000 - $14,400 = $33,600

Therefore, the operating income will increase by $12,000 (as the fixed costs will remain the same). So, the correct answer is C.

If Fuller Accepts the Special Order, by How Much Will