Benjamin Company had the following results of operations for the past year: Sales (16,500 units at $16) $ 264,000 Direct materials and direct labor $ 165,000 Overhead (20% variable) 33,000 Selling and administrative expenses (all fixed) 28,050 (226,050) Operating income $ 37,950 A foreign company offers to buy 4125 units at $10.40 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $640 and selling and administrative costs by $580. Assuming Benjamin's productive capacity is 16,500 units per year and it accepts the offer, its profits will:

Question

Justin David

Business

4 March, 10:45

Benjamin Company had the following results of operations for the past year: Sales (16,500 units at $16) $ 264,000 Direct materials and direct labor $ 165,000 Overhead (20% variable) 33,000 Selling and administrative expenses (all fixed) 28,050 (226,050) Operating income $ 37,950 A foreign company offers to buy 4125 units at $10.40 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $640 and selling and administrative costs by $580. Assuming Benjamin's productive capacity is 16,500 units per year and it accepts the offer, its profits will:

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Justice Vincent · Answer 1

profits will decrease by $1,220

Explanation:

Consider the Incremental Costs and Revenues that arise from accepting the offer.

Sales (4125 units*$10.40) 42,900

Direct materials and direct labor ($ 165,000 /16,500 * 4125 units) (41,250)

Variable Overheads (33,000*20%) / 16,500 * 4125 units) (1,650)

Incremental Fixed overheads (640)

Incremental selling and administrative costs (580)

Incremental Income / (loss) (1,220)

Therefore profits will decrease by $1,220 if it accepts the offer.