MC Qu. 71 Benjamin Company had the following results... Benjamin Company had the following results of operations for the past year: Sales (16,000 units at $9.95) $159,200 Direct materials and direct labor$95,200 Overhead (20% variable) 15,200 Selling and administrative expenses (all fixed) 31,900 (142,300) Operating income $16,900 A foreign company (whose sales will not affect Benjamin's market) offers to buy 3,900 units at $7.39 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $590 and selling and administrative costs by $290. Assuming Benjamin has excess capacity and accepts the offer, its profits will:

Benjamin Company

Assuming Benjamin has excess capacity and accepts the offer, its profits will increase by:

= $3,995.

Explanation:

a) Data and Calculations:

Sales (16,000 units at $9.95)                          $159,200

Direct materials and direct labor                     $95,200

Overhead (20% variable)                                    15,200

Selling and administrative expenses (all fixed) 31,900

Total expenses                                                (142,300)

Operating income                                            $16,900

Relevant costs:

Direct materials and direct labor                     $95,200

Variable Overhead (20% variable)                       3,040 ($15,200 * 20%)

Total expenses                                                  (98,240)

Variable cost per unit = $6.14 ($98,240/16,000)

Additional costs:

Fixed overhead                                                        590

Selling and administrative expenses (all fixed)     290

Accepting the offer:

Revenue from offer =       $28,821 (3,900 * $7.39)

Costs:

Variable cost                    $23,946 (3,900 * $6.14)

Additional cost:

Fixed overhead                      590

Selling and

administrative expenses      290

Total costs on the offer $24,826

Increase in profits =         $3,995