Question

Markson Company had the following results of operations for the past year: Sales (8,000 units at $19.30) $ 154,400 Variable manufacturing costs $ 83,200 Fixed manufacturing costs 14,300 Variable selling and administrative expenses 9,200 Fixed selling and administrative expenses 19,300 (126,000 ) Operating income $ 28,400

A foreign company whose sales will not affect Markson's market offers to buy 2,000 units at $12.95 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $1,530 for the purchase of special tools. Markson’s annual productive capacity is 12,000 units. If Markson accepts this additional business, its profits will:

Answer 1

	Effect on profit:
					$	$
	Selling price					12.95
	Less: Variable cost
	Variable manufacturing cost
	(83200/8000)				10.4
	Variable selling and administrative expense
	(9200/8000)				1.15	11.55
	Contribution margin per unit					1.4
	Units offered to buy					2000
	Total contribution			(2000*1.4)		2800
	Less: Incremental fixed cost					1530
	Incremental profit					1270
	If Markson accepts this additional business, its profits will increase by $ 1270
	I appreciate your ratings