Question

Lattimer Company had the following results of operations for the past year: Sales (15,000 units at $12.30) $184,500 Variable manufacturing costs $102,000 Fixed manufacturing costs 25,500 Selling and administrative expenses (all fixed) 40,500 (168,000) Operating income $16,500 A foreign company whose sales will not affect Lattimer's market offers to buy 5,600 units at $8.10 per unit. In addition to existing costs, selling these units would add a $0.31 selling cost for export fees.

If Lattimer accepts this additional business, the special order will yield a:

Answer 1

$5,544

Step-by-step explanation:

Variable cost:

= (Variable manufacturing costs ÷ Units sold in past year) × Units offered

= ($102,000 ÷ 15,000) × 5,600

= $38,080

Net income:

= Sales - Variable cost - Additional selling cost

= (5,600 × $8.10) - $38,080 - (5,600 × $0.31)

= $45,360 - $38,080 - $1,736

= $5,544

Therefore, the special order will yield a net income of $5,544.