Question

The following information relates to the Jasmine Company for the upcoming year, based on 428,000 units: Amount Per Unit Sales $ 8,560,000 $ 76.00 Cost of goods sold 6,848,000 44.00 Gross margin 1,712,000 32.00 Operating expenses 1,020,000 8.50 Operating profits $ 692,000 $ 23.50 The cost of goods sold includes $2,268,400 of fixed manufacturing overhead; the operating expenses include $292,400 of fixed marketing expenses. A special order offering to buy 78,000 units for $20.60 per unit has been made to Jasmine. Fortunately, there will be no additional operating expenses associated with the order and Jasmine has sufficient capacity to handle the order. How much will operating profits increase if Jasmine accepts the special order?

Answer 1

Increase operating profit by $772,200

Step-by-step explanation:

As for the provided information,

Details for special order are as follows:

It will require no additional operating expense whether fixed or variable in nature.

Further there is an idle capacity lying, to meet the order which will not require extra fixed manufacturing cost.

Total fixed cost in cost of goods sold = $2,268,400

Therefore total variable cost in cost of goods sold = $6,848,000 - $2,268,400 = $4,579,600

Average variable cost per unit = $4,579,600/428,000 = $10.70

Therefore, if the special order is accepted, which will cost only $10.70 per unit and be sold at $20.60 per unit.

It will add to operating profits as follows:

= 78,000
`*` ($20.60 - $10.70) = $772,200