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A foreign company (whose sales will not affect Benjamin's market) offers to buy 4,300 units at $7.83 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $630 and selling and administrative costs by $330. Assuming Benjamin has excess capacity and accepts the offer, its profits will:

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Question Completion:

Benjamin Company had the following results of operations for the past year:

Sales (16,000 units at $9.90)                                            $158,400

Direct materials and direct labor                      $94,400  

Overhead (20% variable)                                     14,400  

Selling and administrative expenses (all fixed)  31,800   (140,600)

Operating income                                                               $17,800

Answer:

Benjamin Company

The company's profits will increase by $6,635.

Explanation:

a) Data and Calculations:

Variable costs of production:

Direct materials and labor = $5.90 ($94,400/16,000)

Variable overhead = $0.18 ($2,880/16,000)

Fixed overhead = $11,520 ($14,400 - $2,880)

Fixed selling and admin. expense = $31,800

Relevant costs:

Direct materials and labor ($5.90 * 4,300) = $25,300

Variable overhead ($0.18 * 4,300) =                       774

Fixed overhead =                                                    630

Selling and admin. expense =                                330

Total relevant costs for the special offer =    $27,034

Sales revenue ($7.83 * 4,300)                       $33,669

Profit from the special offer =                          $6,635

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