Question

Lattimer Company had the following results of operations for the past year: Sales (15,000 units at $12) $ 180,000 Variable manufacturing costs $ 97,500 Fixed manufacturing costs 21,000 Selling and administrative expenses (all fixed) 36,000 (154,500 ) Operating income $ 25,500 A foreign company whose sales will not affect Lattimer's market offers to buy 5,000 units at $7.50 per unit. In addition to existing costs, selling these units would add a $0.25 selling cost for export fees. Lattimer’s annual production capacity is 25,000 units. If Lattimer accepts this additional business, the special order will yield a:

Answer 1

Effect on income= $3,750 increase

Step-by-step explanation:

Giving the following information:

Variable manufacturing costs $ 97,500

A foreign company whose sales will not affect Lattimer's market offers to buy 5,000 units at $7.50 per unit.

In addition to existing costs, selling these units would add a $0.25 selling cost.

Because it is a special offer, we will not take into account the fixed costs.

Unitary variable manufacturing costs= 97,500/15,000= $6.5 + 0.25= $6.75

Now, we can calculate the effect on income:

Effect on income= 5,000*(7.5 - 6.75)

Effect on income= $3,750 increase