Question

Benjamin Company had the following results of operations for the past year:

Sales (16,000 units at $9.50)				$	152,000
Direct materials and direct labor	$	88,000
Overhead (20% variable)		8,000
Selling and administrative expenses (all fixed)		31,000			(127,000	)
Operating income				$	25,000

A foreign company (whose sales will not affect Benjamin's market) offers to buy 3,000 units at $6.40 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $500 and selling and administrative costs by $200. Assuming Benjamin has excess capacity and accepts the offer, its profits will:

Multiple Choice

• Increase by $2,700.

• Increase by $1,700.

• Increase by $19,200.

• Decease by $2,700.

• Increase by $2,400.

Answer 1

The correct option is (b)

i.e, Increase by $1,700