Question

A foreign company whose sales will not affect markson's market offers to buy 2,000 units at $15.35 per unit. in addition to variable manufacturing costs, selling these units would increase fixed overhead by $1,690 for the purchase of special tools. if markson accepts this additional business, its profits will:

Answer 1

The business decision involves incremental analysis to determine the effect on Markson's profits when an offer to buy 2,000 units at $15.35 each is made by a foreign company, considering variable manufacturing costs and additional fixed overhead.

Step-by-step explanation:

The subject in question is business, specifically the area of managerial accounting that deals with decision making and incremental analysis. A foreign company offers to buy 2,000 units from Markson at $15.35 per unit. The variable manufacturing costs and the additional fixed overhead expenses for special tools amount to $1,690. To determine how Markson's profits will be affected by this additional business, one must calculate the total additional revenue and compare it with the total additional costs (variable and additional fixed costs).

Suppose the total variable cost per unit is X. Then, the additional revenue generated by this offer would be 2,000 units multiplied by $15.35, and the total additional costs would be the sum of (2,000 units multiplied by X) and the $1,690 for the special tools. The difference between the additional revenue and additional costs represents the change in profit due to the sale.

Answer 2

In businesses involving manufacturing companies, they conduct economic analysis on their capital costs and profit. By doing this, they would have an outlook on their breakeven time when they could recover all their initial capital costs.

Net profit is equal to the amount of money of sales minus the variable and fixed costs. These costs include equipment and installation costs, maintenance costs, cost of acquiring the raw data and all the other costs incurred just to produce the final product. Therefore, the net profit is equal to

Net profit = (Price per unit*Number of Units) - (Variable + Fixed Costs)
Net Profit = ($15.35*2000) - $1,690
Net Profit = $305,310