Reference no: EM132632778

Clear Sky Sailmakers manufactures sails for sailboats. The company has the capacity to produce 15,000 sails per year, but is currently producing and selling 10,000 sails per year.

The following information relates to current production:

Sale price per unit $250

Variable costs per unit:

Manufacturing $165

Marketing and administrative $50

Total fixed costs:

Manufacturing $750,000

Marketing and administrative $200,000

Question 1: If Clear Sky Sailmakers accepts a special order for 5,000 sails at a price of $225 per unit, and fixed costs remain unchanged, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.)

a. Increase by $1,125,000

b. Increase by $50,000

c. Decrease by $50,000

d. Increase by $150,000

Question 2: If Clear Sky Sailmakers accepts a special order for 3,000 sails at a price of $215 per unit, fixed costs remain unchanged, and no variable marketing and administrative costs will be incurred for this order, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.)

a. Increase by $50,000

b. Increase by $150,000

c. Increase by $0

d. Decrease by $50,000