If a special sales order is accepted for 2,800 widgets at a price of 32 per unit, fixed costs increase by $5,000, and variable marketing and administrative costs for that order are $3 per unit, how would operating income be affected? (note: assume regular sales are not affected by the special order.)

An increase in the fixed costs would increase the total cost of goods sold, and there for reducing the operation income. In our case the operating income=$76,200

Explanation:

The formula for the operating income can be expressed as;

Operating income=Total revenue from sales-cost of goods sold

where;

Total revenue from sales=price per unit×number of units sold

price per unit=32

number of units sold=2,800

Total revenue from sales=(32×2,800)=$89,600

Cost of goods sold=total fixed cost+total variable cost

Total fixed cost=$5,000

total variable cost=cost per unit×number of units

total variable cost=(3×2,800)=$8,400

Cost of goods sold=5,000+8,400=$13,400

Operating income=89,600-13,400=$76,200

An increase in the fixed costs would increase the total cost of goods sold, and there for reducing the operation income. In our case the operating income=$76,200