Do the Hustle Company a manufacturer of bell bottom jeans ha

Do the Hustle Company, a manufacturer of bell bottom jeans, has the capacity to produce 15,000 pairs of jeans each month. Current production and sales are 10,000 pairs per month at a selling price of $15 each. Based on this level of activity, the following unit costs are incurred: Direct Materials Direct Labor $5.00 $3.00 $0.75 Variable MOH Fixed MOH $1.5 0 Hustle has received a special order from a customer who wants to pay a reduced price of $10 per pair of jeans for an order of 6,000 pairs of jeans. If the special order is accepted, what will be the change in operating income? O A. decrease of $30,000 B. increase of $1,250 C. decrease of $6,250 D. increase of $5,000 OE. increase of $7,500

Solution

Incremental revenue 60000 =6000*10 Expenses: Direct materials 30000 =6000*5 Direct labor 18000 =6000*3 Variable MOH 4500 =6000*0.75 Opportunity cost 6250 =1000*(15-5-3-0.75) 58750 Operating income 1250 Option B is correct