Centric Sail Makers Manufacture Sails for Sailboats

Multiple Choice

Centric Sail Makers manufacture sails for sailboats. The company has the capacity to produce 30,000 sails per year, and is currently producing and selling 25,000 sails per year. The following information relates to current production: Fixed manufacturing costs increase by $100,000 for every 500 units produced beyond the maximum capacity of the plant. If a special sales order is accepted for 5,500 sails at a price of $150 per unit, and if the order requires no variable and fixed marketing and administrative costs, what will be the effect on operating income?

A) Operating income increases $395,000.
B) Operating income decreases $395,000.
C) Operating income increases $385,000.
D) Operating income decreases $385,000.