If a special sales order is accepted for 2 comma 800 widgets at a price of $ 34 per unit, fixed costs increase by $ 10 comma 000, and variable marketing and administrative costs for that order are $ 1 per unit, how would operating income be affected? (note: assume regular sales are not affected by the special order.)a. decrease by $5,000 b. decrease by $15,000 c. increase by $35,000 d. increase by $60,000

Increase in OI= 48800

Explanation:

In order to find the increase/decrease in operating income we need to calculate contribution margin per unit first. Since there are no values for variable manufacturing costs, we assume that the variable manufacturing cost per unit is $12.

The contribution margin is determined as follows:

Variable Mfg. Cost= $12

Variable Marketing= $1

Total Variable cost = ($12+$1) $13

Contribution margin per unit = SP - TVC

Contribution margin per unit = $34 - $13

Contribution margin per unit = $21

Total Contribution Margin =$21× 2,800

Total Contribution Margin = $58800

Now we calculate increase in operating income by subtracting the increase in fixed costs as a result of accepting the special sales order.

Increase in OI= $58800 - $10000

Increase in OI= 48800

(Note: the options in the question don't match the real answer because this solution is based on self-taken assumptions due to lack of information. This solution can help students to understand the concept of calculating increase/decrease in operating income, on the flip side, values could be varied to give different answers)

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