Reference no: EM132603527
The Immanuel Company has just obtained a request for a special order of 6,000 jigs to be shipped at the end of the month at a selling price of $7 each. The company has a production capacity of 90,000 jigs per month with total fixed production costs of $144,000. At present, the company is selling 80,000 jigs per month through regular channels at a selling price of $11 each.
For these regular sales, the cost for one jig is:
Variable Production Cost = $4.60
Fixed Production Cost = $1.80
Variable Selling Expense =$1.00
If the special order is accepted, Immanuel will not incur any selling expense; however, it will incur shipping costs of $0.30 per unit.
Question 1: Suppose that total regular sales of jigs are 85,000 units per month, and all other conditions remain the same. If Immanuel accepts the special order, what will be the change in monthly operating income?
A. $3,600 decrease.
B. $5,400 decrease.
C. $7,200 increase.
D. $14,000 increase
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