Question

MC Qu. 71 Benjamin Company had the following results... Benjamin Company had the following results of operations for the past year: Sales (16,000 units at $9.95) $159,200 Direct materials and direct labor$95,200 Overhead (20% variable) 15,200 Selling and administrative expenses (all fixed) 31,900 (142,300) Operating income $16,900 A foreign company (whose sales will not affect Benjamin's market) offers to buy 3,900 units at $7.39 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $590 and selling and administrative costs by $290. Assuming Benjamin has excess capacity and accepts the offer, its profits will:

Answer 1

Benjamin Company

Assuming Benjamin has excess capacity and accepts the offer, its profits will increase by:

= $3,995.

Step-by-step explanation:

a) Data and Calculations:

Sales (16,000 units at $9.95) $159,200

Direct materials and direct labor $95,200

Overhead (20% variable) 15,200

Selling and administrative expenses (all fixed) 31,900

Total expenses (142,300)

Operating income $16,900

Relevant costs:

Direct materials and direct labor $95,200

Variable Overhead (20% variable) 3,040 ($15,200 * 20%)

Total expenses (98,240)

Variable cost per unit = $6.14 ($98,240/16,000)

Additional costs:

Fixed overhead 590

Selling and administrative expenses (all fixed) 290

Accepting the offer:

Revenue from offer = $28,821 (3,900 * $7.39)

Costs:

Variable cost $23,946 (3,900 * $6.14)

Additional cost:

Fixed overhead 590

Selling and

administrative expenses 290

Total costs on the offer $24,826

Increase in profits = $3,995