Sprint Company makes special equipment used in cell towers. Each unit sells for $400. Sprint uses just-in-time inventory procedures; it produces and sells 12,500 units per year. It has provided the following income statement data:

A foreign company has offered to buy 100 units for a reduced price of $250 per unit. The marketing manager says the sale will not negatively impact the company's regular sales. The sales manager says that this sale will not require any incremental selling & administrative costs, as it is a one-time deal. The production manager reports that there is plenty of excess capacity to accommodate the deal without requiring any additional fixed costs. If Sprint accepts the deal, how will this impact operating income?

A) Up $17,000

B) Down $8,000

C) Up $25,000

D) Down $800

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Traditional Costing Revenue Cost of goods sold Gross Profit Selling & admin expenses Operating income Contribution Margin $5,000,000 Revenue 3,000,000 2,000,000 650,000 Variable Expenses Manufacturing Selling & admin $5,000,000 1,000,000 400,000 Contribution Margin 3,600,000 Fixed Expenses Manufacturing Selling & admin $1,350,000 Operating income 2,000,000 250,000 $1,350,000 Traditional Costing Revenue Cost of goods sold Gross Profit Selling & admin expenses Operating income Contribution Margin $5,000,000 Revenue 3,000,000 2,000,000 650,000 Variable Expenses Manufacturing Selling & admin $5,000,000 1,000,000 400,000 Contribution Margin 3,600,000 Fixed Expenses Manufacturing Selling & admin $1,350,000 Operating income 2,000,000 250,000 $1,350,000

Answer rating: 100% (QA)

A Up 17000 Explanation ... View the full answer