Sky High Seats Manufactures Seats for Airplanes

Sky High Seats manufactures seats for airplanes. The company has the capacity to produce 100,000 seats per year, but is currently producing and selling 75,000 seats per year. The following information relates to current production: If a special sales order is accepted for 4,000 seats at a price of $325 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.)

A) Increase by $2,180,000
B) Increase by $420,000
C) Increase by $220,000
D) Decrease by $420,000

Correct Answer:

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