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Potlatch Company manufactures sonars for fishing boats. Model 100 sells for $200. Potlatch produces ...

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Potlatch Company manufactures sonars for fishing boats. Model 100 sells for $200. Potlatch produces ...

Potlatch Company manufactures sonars for fishing boats. Model 100 sells for $200. Potlatch produces and sells 5,000 units per year. Cost data are as follows:

Variable manufacturing   $95    per unit
Variable selling and administrative    $5    per unit
Fixed manufacturing   $270,000    per year
Fixed selling and administrative   $130,000    per year

An offer has come in for a one-time sale of 300 units at a special price of $130 per unit. The marketing manager says that the sale will not affect the company's regular sales activities, and that it will not require any variable selling and administrative costs. The production manager says that there is plenty of excess capacity and the sale will not impact fixed costs in any way. What is the effect of this deal on operating income?
A) Operating income increases by $10,500.
B) Operating income increases by $200.
C) Operating income decreases by $10,500.
D) Operating income increases by $1,500.

Textbook

Horngren's Financial & Managerial Accounting, The Financial Chapters

Edition: 5^th

Authors: Miller-Nobles, Mattison, Matsumura

Read 578 times

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7 years ago

Will mark this subject solved, thanks

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Mrgo-breed

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Excellent

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