Johnson Company manufactures a variety of shoes, and has received a special one-time-only order directly from a wholesaler. Johnson has sufficient idle capacity to accept the special order to manufacture 15,000 pairs of sneakers at a price of $7.50 per pair.

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Business

Ramiro Cohen

16 May, 14:22

Johnson Company manufactures a variety of shoes, and has received a special one-time-only order directly from a wholesaler. Johnson has sufficient idle capacity to accept the special order to manufacture 15,000 pairs of sneakers at a price of $7.50 per pair.

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Titus Soto · Answer 1

Addition to operating income by sepcial order is $22,500

Explanation:

As the fixed cost is covered by other production. It is not been accounted for in this order. It is an avoidable cost regarding this project.

Special order 15,000 pairs

Sale receipt = 15,000 pairs x $7.50 = $112,500

Variable cost = 15,000 pairs x $5 = $75,000

Gross Income = $112,500 - $75,000 = $37,500

Variable Selling Expense = 15,000 pairs x $1

Variable Selling Expense = $15,000

Operating Income = Gross Income - Variabe selling price

Operating Income = $37,500 - $15,000

Operating Income = $22,500