Clear Sky Sailmakers manufactures sails for sailboats.

The company has the

capacity to produce 15,000 sails per year, but is currently producing and selling
10,000 sails per year. The following information relates to current production:

Sale price per unit $250

Variable costs per unit:

     Manufacturing $155
     Marketing and administrative $57

Fixed Cost per Unit

     Manufacturing $75
     Marketing and administrative $20
If a special sales order is accepted for 4972 sails at a price of $227 per unit, and
fixed costs remain unchanged, how would operating income be affected?
(assume regular sales are not affected by the special order) If accepting the special
order would reduce income, use a negative number for your answer.
10000 4972 14972
250 227 If special order is accepted, the operating loss will decrease by $ 74,580.

155 Sales
57
less: variable costs
     Manufacturing
75
20      Marketing and administrative

Gross margin
less: fixed costs
     Manufacturing

     Marketing and administrative

Operating Income
ating loss will decrease by $ 74,580.
Current situation
10000 sails
$ 2,500,000
(10,000 sails * $ 250 per sail)

$ 1,550,000
(10,000 sails * $ 155 per sail)
$ 570,000

(10,000 sails * $ 57 per sail)

$ 380,000

$ 750,000
(10,000 sails * $ 75 per sail)
$ 200,000
(10,000 sails * $ 20 per sail)
$ -570,000
If special order is accepted Differential Income
14972 sails
$ 3,628,644 $ 1,128,644
(10,000 sails * $ 250 per sail) add (4,972 sail * $ 227 per sail)

$ 2,320,660 $ 770,660
(14,972 sails * $ 155 per sail)
$ 853,404 $ 283,404

(14,972 sails * $ 57 per sail)

$ 454,580 $ 74,580

$ 750,000 $ -

$ 200,000 $ -

$ -495,420 $ 74,580