How operating income be affected

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Reference no: EM13128337

Hoffman Corp. currently sells 40,000 dental tools to its normal customers, but it has a capacity to produce 50,000 tools. Its product sells for $30 per tool and the variable costs incurred in manufacturing and selling the product are as follows on a per tool basis:

Direct materials - $8; Direct labor - $4; Sales commission - $2.

A customer has proposed a special one-time order to purchase 10,000 tools at a discounted price of $20 per unit. If Hoffman accepts the special order, the company would not have to pay its salespeople their normal commission of $2 per unit, but the company would incur a shipping cost of $3 per unit on the items in the special order.

If Hoffman accepts the special order, how would operating income be affected?

a) Decrease by $80,000

b) Decrease by $120,000

c) Increase by $30,000

d) Increase by $50,000

Reference no: EM13128337

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