Martin Incorporated provided the following information regarding its only product: Assuming there is excess capacity, what would be the effect on operating income of accepting a special order for 3500 units at a sale price of $41 per product assuming additional fixed manufacturing overhead costs of $5100 is incurred? (NOTE: Assume regular sales are not affected by the special order. Round any intermediary calculations to the nearest cent.)
A)Increase by $143,500
B)Decrease by $75,225
C)Increase by $75,225
D)Increase by $80,325

Question

Martin Incorporated provided the following information regarding its only product:  Assuming there is excess capacity, what would be the effect on operating income of accepting a special order for 3500 units at a sale price of $41 per product assuming additional fixed manufacturing overhead costs of $5100 is incurred? (NOTE: Assume regular sales are not affected by the special order. Round any intermediary calculations to the nearest cent.)
A)Increase by $143,500 
B)Decrease by $75,225 
C)Increase by $75,225 
D)Increase by $80,325

Quizplus · Accepted Answer

First, we need to calculate the contribution margin per unit:
Sale price per unit - Variable cost per unit = Contribution margin per unit
$46 - $32 = $14
Next, we calculate the total contribution margin for the special order:
$14 x 3500 = $49,000
Then we calculate the total additional fixed manufacturing overhead costs incurred:
$5100
Now we can calculate the operating income for the special order:
Total contribution margin - Additional fixed manufacturing overhead costs = Operating income for special order
$49,000 - $5100 = $43,900
Therefore, the effect on operating income of accepting the special order would be an increase of $75,225 ($43,900 - $0).

Martin Incorporated Provided the Following Information Regarding Its Only Product