Luna Company makes special equipment used in cell towers.Each unit sells for $400.Luna produces and sells 12,600 units per year.They have provided the following income statement data:

\begin{array}{|l|r|l|r|}\hline \text { Traditional Format } & & \text { Contribution Format } & \\\hline \text { Revenue } & \$ 5,040,000 &\text { Revenue } & \$ 5,040,000 \\\hline \text { Cost of goods sold } & 3,000,000 & \text { Variable costs: } & \\\hline \text { Gross profit } & 2,040,000 & \text { Manufacturing } & 1,000,000 \\\hline \text { Selling \& admin, expenses } & 550,000 & \text { Selling \& admin. } & 300,000 \\\hline & & \text { Contribution margin } & 3,740,000 \\\hline & & \text { Fixed costs: } & \\\hline & & \text { Manufacturing } & 2,000,000\\ \hline & & \text { Selling \& admin. } & 250,000 \\\hline\text { Operating income } & \$ 1,490,000& \text { Operating income } & \$ 1,490,000\\\hline\end{array}

A foreign company has offered to buy 75 units for a reduced sales price of $350 per unit.The marketing manager says the sale will not affect the company's regular sales.The sales manager says that this sale will require variable selling and administrative costs.The production manager reports that there is plenty of excess capacity to accommodate the deal without requiring any additional fixed costs.If Luna accepts the deal,how will this impact operating income? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar.)
A) Operating income will increase by $18,512.
B) Operating income will decrease by $18,512.
C) Operating income will increase by $26,250.
D) Operating income will decrease by $26,250.

Deeper Clean Company Makes Bulk Quantities of Cleaning Fluids

True/False

Correct Answer:VerifiedUnlock this answer nowGet Access to more Verified Answers free of chargeAccess For Free

Correct Answer:
Verified
Unlock this answer now
Get Access to more Verified Answers free of charge