1. Benjamin Company had the following results of operations for the past year: A
ID: 2528372 • Letter: 1
Question
1. Benjamin Company had the following results of operations for the past year:
A foreign company (whose sales will not affect Benjamin’s market) offers to buy 4,000 units at $7.50 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $600 and selling and administrative costs by $300. Assuming Benjamin’s productive capacity is 16,000 units per year and accepts the offer, its profits will:
2. Bluebird Mfg. has received a special one-time order for 15,000 bird feeders at $3 per unit. Bluebird currently produces and sells 75,000 units at $7.00 each. This level represents 80% of its capacity. These bird feeders would be marketed under the wholesaler’s name and would not affect Bluebird’s sales through its normal channels. Production costs for these units are $3.50 per unit, which includes $2.25 variable cost and $1.25 fixed cost. If Bluebird accepts this additional business, the incremental revenue will be:
3. Bluebird Mfg. has received a special one-time order for 15,000 bird feeders at $3 per unit. Bluebird currently produces and sells 75,000 units at $7.00 each. This level represents 80% of its capacity. These bird feeders would be marketed under the wholesaler’s name and would not affect Bluebird’s sales through its normal channels. Production costs for these units are $3.50 per unit, which includes $2.25 variable cost and $1.25 fixed cost. If Bluebird accepts this additional business, the incremental cost will be:
Sales (16,000 units at $10) $ 160,000 Direct materials and direct labor $ 96,000 Overhead (20% variable) 16,000 Selling and administrative expenses (all fixed) 32,000 (144,000 ) Operating income $ 16,000Explanation / Answer
Answer
1.
Hence,its profits will:$4300
2.
Incremental revenue (15,000 feeders * $3) =$45,000
Incremental costs (15,000 feeders * $2.25 variable cost) =$33,750
Contribution margin increase =$11,250
Hence,The net income will increase by $11250
3.
If Bluebird accepts this additional business, the incremental cost will be:
Incremental costs (15,000 feeders * $2.25 variable cost) = $33,750
Hence the incremental cost will be by $33750
Particulars Amount Amount Selling price per unit $7.50 Variable costs per unit: Direct materials and direct labor($96,000/16,000 units) $6.00 Variable overhead[(20% * $16,000)/16,000 units] $0.20 Total variable costs per unit $6.20 Contribution margin per unit $1.30 Units in order 4000 units Total contribution margin $5200 Less incremental fixed costs: -Overhead $300 -Selling and administrative $600 Total incremental fixed costs ($900) Incremental income from order $4300Related Questions
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