4 March, 06:30

# Markson Company had the following results of operations for the past year: Sales (8,000 units at \$21.00) \$168,000 Variable manufacturing costs \$90,000 Fixed manufacturing costs 16,000 Variable selling and administrative expenses 16,000 Fixed selling and administrative expenses 21,000 (143,000) Operating income \$25,000 A foreign company whose sales will not affect Markson's market offers to buy 2,000 units at \$15.50 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by \$1,700 for the purchase of special tools. If Markson accepts this additional business, its profits will:

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1. 4 March, 09:05
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Effect on income = \$2,800 increase

Explanation:

Giving the following information:

Variable manufacturing costs \$90,000

Unitary cost = (90,000/8,000) = \$11.25

Variable selling and administrative expenses 16,000

Unitary Variable selling and administrative expenses = 16,000/8,000 = 2

A foreign company whose sales will not affect Markson's market offers to buy 2,000 units at \$15.50 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by \$1,700 for the purchase of special tools.

Because it is a special offer that will not affect the current sales, we will have into account the incremental fixed costs only.

Effect on income = (2,000*15.5) - 2,000 * (11.25+2) - 1,700 = \$2,800 increase.