Markson Company had the following results of operations for the past year Sales

Question

Markson Company had the following results of operations for the past year Sales (8,000 units at $19.70) Variable manufacturing costs Fixed manufacturing costs Variable selling and administrative expenses Fixed selling and administrative expenses Operating income $ 157,600 $84,800 14,700 10,800 19,700 (130,00e) $ 27,600 A foreign company whose sales will not affect Markson's market offers to buy 2.000 units at $13.55 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $1,570 for the purchase of special tools. Markson's annual productive capacity is 12,000 units. If Markson accepts this additional business, its profits will: Multiple Choice

Explanation / Answer

Exitiing sales 8000Units, Special order is 2000 Units , Total 10,000 Units and this is within the capacity Variable cost per unit =$84800/8000=$10.60 Incremental Profit if the Special order accepted Particulars Amount in $ Incremental Sales 2000*$13.55 27100 Less: Variable costs 2000*$10.60 21200 Less: Incremental Fixed costs 1570 Incremnetal profit 4330 Special order will not incure any selling and Admin Expenses if the Markson accept the special order , its Profit will incresed by $4330. Total Profit Including Special order =$27600+$4330=$31930

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