Question
Markson Company had the following results of operations for the past year: Contribution margin income statement Per Unit Annual Total Sales (8,600 units) $ 20.00
Markson Company had the following results of operations for the past year:
Contribution margin income statement | Per Unit | Annual Total |
Sales (8,600 units) | $ 20.00 | $ 172,000 |
Variable costs |
|
|
Direct materials | 4.25 | 36,550 |
Direct labor | 6.00 | 51,600 |
Overhead | 2.00 | 17,200 |
Contribution margin | 7.75 | 66,650 |
Fixed costs |
|
|
Fixed overhead | 4.25 | 36,550 |
Income | $ 3.50 | $ 30,100 |
A foreign company offers to buy 2,300 units at $14 per unit. In addition to variable manufacturing and administrative costs, selling these units would increase fixed overhead by $1,840 for the purchase of special tools. Marksons annual production capacity is 12,900 units. If Markson accepts this additional business, its profits will: A) Increase by $4,025. B) Decrease by $6,700. C) Decrease by $1,840. D) Increase by $2,185. E) Decrease by $5,865.
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