Question
#meta manufactures yoga props such as straps and blocks. Straps are sold to customers at a price of $18 per strap. The company currently produces
#meta manufactures yoga props such as straps and blocks. Straps are sold to customers at a price of $18 per strap. The company currently produces 36,000 straps a year, which is 90% of full capacity. The company does not maintain any safety stock and only produces the exact number of straps it sells.
At the current operating level, the following total costs are incurred:
Product Costs | $136,800 |
Period Costs | $41,400 |
Of the total product costs, $43,200 are fixed costs. Of the total period costs, $16,200 are fixed costs.
An order has been received from a chain of yoga studios for 5,000 straps at a special price of $15 per strap. If the special order is accepted, the unit variable manufacturing costs will increase by $0.20 per strap due to the type of buckle used. A different supplier will be used for the buckles and therefore a new supplier contract has to be drafted by the company's outside attorney. The attorney's fee is estimated to be $1,000. Variable period costs consist solely of sales commissions, which will not be paid on the special order. No other costs will be affected by acceptance of the special order.
By how much will operating income increase if the special order is accepted?
A.
$45,300
B.
$34,120
C.
$43,300
D.
$39,800
E.
None of the above.
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