Question

Markson Company had the following results of operations for the past year: $ 166,400 Sales (8,000 units at $20.80) Variable manufacturing costs Fixed manufacturing costs Variable selling and administrative expenses Fixed selling and administrative expenses Operating income $89,200 15,800 15,200 20,800 (141,000) $ 25,400 A foreign company whose sales will not affect Markson's market offers to buy 2,000 units at $15.20 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $1,680 for the purchase of special tools. Markson's annual productive capacity is 12,000 units. If Markson accepts this additional business, its profits will:

Answer 1

Selling Price per unit Lees: Variable Costs per unit $20.80 Variable Manufacturing cost (S89,200 / 8,000 units) Variable Selling and administrative cost ($15,200 / 8,000 units) $11.15 $1.90 Total Variable Costs per unit Contribution margin per unit $13.05 $7.75 Units in order 2,000 units Contribution margin (S7.75 $15,500 2,000 units) Less: Incremental Fixed overhead $1,680 S13,820 Incremental income from order Markson accepts this additional business, its profits will increase by $13,820