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Benjamin Company had the following results of operations for the past year:
Sales (17,700 units at $11) $ 194,700
Direct materials and direct labor $ 88,500
Overhead (20% variable) 17,700
Selling and administrative expenses (all fixed) 23,010 (129,210 )
Operating income $ 65,490
A foreign company (whose sales will not affect Benjamin’s market) offers to buy 4,425 units at $8.80 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $410 and selling and administrative costs by $970. Assuming Benjamin’s productive capacity is 17,700 units per year and accepts the offer, its profits will:_________.
A. Decrease by $9,735
B. Decrease by $11,115
C. Decrease by $55,755
D. Increae by $8,355
E. Increase by $5,395

Respuesta :

Answer:

A. Decrease by $9,735

Explanation:

per unit cost of Direct materials and direct labor = $ 88,500 / 17,700

   = $5 per unit

contribution margin per unit = 11- 5 = $6 per unit

If Benjamin company accepts the offer then it will lose its contribution margin of 4,425 units, So, loss of contribution margin = 4425 x 6 = $26,550

New contribution margin per unit offer = 8.80 - 5 = $3.8 per unit

So, contribution margin from offer = 4425 x 3.8 = $16,815

Total increased in fixed cost = 410 + 970 = $1,380

S0, net income from new offer = 16,815 - 1380 = $15,435

Decrease in profits = 26,550 - 15,435 = $11,115

As, loss of contribution is more than net income from new offer as a result Benjamin company's profits will be decreased by $11,115

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