Istanbul company makes special equipment. Each unit sells for $420. Istanbul uses just in time inventory procedure: it produces and sells $12500 units per year. It has provided the following income statement data:

Traditional format

Contribution margin format

Sale revenue

$5,250,000

Sales revenue

$5,250,000

Cost of goods sold

$3,100,000

Variable cost

Gross profit

$2,150,000

Manufacturing

$1,200,000

Selling and admin exp

$670,000

Selling and admin exp

$400,000

Contribution margin

$3,650,000

Fixed costs

Manufacturing

$1,900,000

Selling and admin

$270,000

Operating income

$1,480,000

Operating income

$1,480,000

A foreign company has offered to buy 110 units for a reduced sales price$250 per unit. The marketing manage says the sale will have no negative impact the company’s regular sales.

The sales manager says that this will not require any additional selling and administrative costs. As it is 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 Istanbul 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).

Answer rating: 100% (QA)

To determine the impact on operating income we need to calculate the change in operating income betw... View the full answer