QUESTION 31

1. Sky High Seats manufactures seats for airplanes. The company has the capacity to produce 100,000 seats per year, but currently produces and sells 75,000 seats per year. The following information relates to current production of seats:

   Sale price per unit	$420
   Variable costs per unit:
   Manufacturing	$260
   Marketing and administrative	$40
   Total fixed costs:
   Manufacturing	$770,000
   Marketing and administrative	$200,000

   If a special sales order is accepted for 4000 seats at a price of $375 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.)

   		Increase by $460,000
   		Increase by $300,000
   		Increase by $2,540,000
   		Decrease by $460,000