Question

Question text

Special Order

Pope Company manufactures a variety of hiking boots and has received a special one-time-only order from a new customer. Pope has sufficient idle capacity to accept the special order to manufacture 1,500 pairs of boots at a price of $55.00 per pair. Pope’s normal selling price is $65.00 per pair of sneakers. Variable manufacturing costs are $35.00 per pair and fixed manufacturing costs are $12.00 a pair. Pope’s variable selling expense for its normal line of sneakers is $1.00 per pair.

What would the effect on Pope’s operating income be if the company accepted the special order?

Pope's operating income would Answerdecreaseincrease

Correct
Mark 1.00 out of 1.00

by $Answer

Incorrect
Mark 0.00 out of 1.00

if the order was accepted.

Answer 1

Special order size = 1,500 pairs of boots
Price = $55.00 per pair.
Variable manufacturing costs = $35.00 per pair
Fixed manufacturing costs = $12.00 a pair.
Variable selling expense = $1.00 per pair.
Fixed manufacturing costs will not be considered while evaluating the special order since Fixed manufacturing costs will not increase due to the acceptance of the special order.
Sales revenue (1,500 x 55)	82,500
Expenses:
Variable manufacturing costs (1,500 x 35)	-52,500
Operating income	30,000
By accepting special order, Pope's operating income would increase by $30,000.
note:Variable selling expenses of $1 is also not relevant for special order decision. Because this is a special order and not required to sell outside in the normal course of business.

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