Leno Company manufactures toasters. For the first 8 months of 2014, the company

Question

Leno Company manufactures toasters. For the first 8 months of 2014, the company reported the following operating results while operating at 75% of plant capacity: Sales (350,600 units) $4,378,200 Cost of goods sold 2,599,800 Gross profit 1,778,400 Operating expenses 839,200 Net income $939,200 Cost of goods sold was 69% variable and 31% fixed; operating expenses were 74% variable and 26% fixed. In September, Leno Company receives a special order for 23,500 toasters at $8.49 each from Centro Company of Ciudad Juarez. Acceptance of the order would result in an additional $3,010 of shipping costs but no increase in fixed operating expenses.

Explanation / Answer

Variable cost of good sold per unit = 2599800 *69% /350600 = 5.1165

Variable Operating Expenses per unit = 839200 *74% /350600 = 1.7713

Total Variable Cost per Unit = $6.89

Contribution Per unit on Special Order = $1.60

Total Contribution on Special Order = $37600

Discritiney Fixed Cost on special order =$3010

Profit Realised from Special Order = $34590

Therefore Acceptance of order will be viable and it will help the company to increse its profit

As the Fixed Overhead of the company is committed fixed overhead it wiil not be considered while callculation special order.

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