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Benjamin Company had the following results of operations for the past year: Sales (11,300 units at $19) $ 214,700 Direct...

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Accounting

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

Sales (11,300 units at $19)$214,700
Direct materials and direct labor$56,500
Overhead (20% variable)11,300
Selling and administrative expenses (all fixed)13,560(81,360)
Operating income$133,340


A foreign company (whose sales will not affect Benjamin’s market)offers to buy 2,825 units at $15.20 per unit. In addition tovariable manufacturing costs, selling these units would increasefixed overhead by $960 and selling and administrative costs by$780. Assuming Benjamin’s productive capacity is 11,300 units peryear and accepts the offer, its profits will:

  • Decrease by $10,735.

  • Decrease by $12,475.

  • Decrease by $ 122,605.

  • Increase by $ 8,995.

  • Increase by $ 3,605.

Answer & Explanation Solved by verified expert
3.8 Ratings (422 Votes)

Correct answer-----------Decrease by $12,475

Working

financial advantage (disadvantage) of accepting the special order
Additional Revenue from offer (2825 x $15.20) $        42,940.00
Less: Total Additional cost due to acceptance of offer $        55,415.00
Financial Disadvantage $      (12,475.00)

.

Calculation of Additional Cost of Order of 2825 units
Per Unit Total
Direct material and labor $                   5.00 $          14,125.00
Variable manufacturing overheads   $                   0.20 $                565.00
Loss of contribution on regular sales ((19-5-.20)*2825) $                13.80 $          38,985.00
Additional fixed cost $            1,740.00
Total Additional cost due to acceptance of order $                19.00 $          55,415.00

If order is accepted then regular sales of 2825 will be lost because the company is operating at maximum capacity and there is no free capacity.
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