Question

Benjamin Company had the following results of operations for the past year:

Sales (16,000 units at $10.50)		$168,000
Direct materials and direct labor	$104,000
Overhead (20% variable)	24,000
Selling and administrative expenses (all fixed)	33,000	(161,000)
Operating income		$7,000

A foreign company (whose sales will not affect Benjamin's market) offers to buy 5,000 units at $8.60 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $700 and selling and administrative costs by $400. If Benjamin accepts the offer, its profits will:

Answer 1

If Benjamin accepts the offer, its profits will Increase by $7,900

Working

financial advantage (disadvantage) of accepting the special order
Additional Revenue from offer (5000 x $8.6)	$        43,000.00
Less: Total Additional cost due to acceptance of offer	$        35,100.00
Financial Advantage	$          7,900.00

.

Calculation of Additional Cost of Order
	Per Unit	Total (per unit cost x 5000)
Direct material and labor (104000/16000= 6.50 per unit)	$                   6.50	$          32,500.00
Variable manufacturing overheads	$                   0.30	$            1,500.00
Additional fixed cost (700+400)		$            1,100.00
Total Additional cost due to acceptance of order	$                   6.80	$          35,100.00