Exercise 8-7 The following operating information reports the results of Grouper

Question

Exercise 8-7

The following operating information reports the results of Grouper Company’s production and sale of 12,500 air-conditioned motorcycle helmets last year. Based on early market forecasts, Grouper expects the same results this year.

The American Motorcycle Club has offered to purchase 1,600 helmets at a price of $100 each. Grouper has sufficient idle capacity to fill the order, which would not affect the company’s cost structure or regular sales.

If Grouper accepts this order, by how much will its income increase or decrease?

.

Sales $2,093,000 Variable manufacturing expenses 888,000 Fixed manufacturing expenses 275,000 Variable selling and administrative expenses 111,000 Fixed selling and administrative expenses 227,000

Explanation / Answer

Calculate operating income increase or decrease :

Operating income will increase by $32128

Sales 160000 Variable cost of goods sold (888000/12500*1600) -113664 Variable selling and administrative exp (111000/12500*1600) -14208 Incremental profit and loss 32128

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