Lattimer Company had the following results of operations for the past year: sale
ID: 2575411 • Letter: L
Question
Lattimer Company had the following results of operations for the past year: sales (15,000 units at $12.05) Variable manufacturing cost.s Fixed manufacturing costs selling and administrative expenses (all fixed) Operating income 180,750 $98,250 21,750 36,750 (156,750) $ 24,000 A foreign company whose sales will not affect Lattimer's market offers to buy 5,100 units at $7.60 per unit. In addition to existing costs, selling these units would add a $0.26 selling cost for export fees. Lattimer's annual production capacity is 25,000 units. If Lattimer accepts this additional business, the special order will yield a:Explanation / Answer
Evaluation of Profitability of Special Order:
There is excess capacity of 10,000 units (25,000-15,000)
Special order is for 5,100 units
Therefore there is enough excess capacity to produce special order.
Spo all Fixed costs are not relevent.
Variable cost per unit = (98,250/15,000) =$6.55
Additional selling cost = $0.26
Total variable expenses = 6.55+0.26 = $6.81
Selling price for special order = $7.60
Gain per unit on special order = 7.60-6.81 =0.79
Total net gain on special order = $0.79*5,100 = $4,029.
Net gain on special oredr =$4,029
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