Question
Benjamin Company had the following results of operations for the past year: Sales (12,000 units at $12) $ 144,000 Direct materials and direct labor $
Benjamin Company had the following results of operations for the past year:
Sales (12,000 units at $12) | $ | 144,000 | |||||
Direct materials and direct labor | $ | 84,000 | |||||
Overhead (20% variable) | 12,000 | ||||||
Selling and administrative expenses (all fixed) | 16,800 | (112,800 | ) | ||||
Operating income | $ | 31,200 | |||||
A foreign company (whose sales will not affect Benjamins market) offers to buy 3,000 units at $9.60 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $670 and selling and administrative costs by $700. Assuming Benjamins productive capacity is 12,000 units per year and accepts the offer, its profits will:
a. Decrease by $8,570
b. Increase by $3,700
c. (Incorrect) Increase by $5,830
d. Decrease by $24,000
e. Decrease by $7,200
I tried to work this question out on my own following a question similar to this one and I ended up getting increasing by $1,840... If you answer please write out how you got everything so I can learn how to do it. Thank you!
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