Question

MC Qu. 72 Benjamin Company had the following results... Benjamin Company had the following results of...

MC Qu. 72 Benjamin Company had the following results...

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

Sales (14,200 units at $18) $ 255,600
Direct materials and direct labor $ 99,400
Overhead (20% variable) 28,400
Selling and administrative expenses (all fixed) 18,460 (146,260 )
Operating income $ 109,340


A foreign company (whose sales will not affect Benjamin’s market) offers to buy 3,550 units at $13.60 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $880 and selling and administrative costs by $900. Assuming Benjamin’s productive capacity is 14,200 units per year and accepts the offer, its profits will:

Multiple Choice

  • Decrease by $15,620.

  • Decrease by $17,400.

  • Decrease by $ 93,720.

  • Increase by $ 13,840.

  • Increase by $ 4,450.

Business   Accounting   
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Homework Answers

Answer #1
Contribution per unit
Selling price 18
Less: VC per unit (99400+28400*20%)/14200 7.4
Contribution per unit 10.6
Differential analysis
Incremental revenue (3550*13.60) 48280
Less: incremental cost
Material (99400/14200*3550) 24850
Overheads (28400*20%)/14200*3550 1420
Fixed Oh 880
Selling admin overheads 900
Opportunity cost for loss of contribution (3550*10.60) 37630
Decrease in income -17400
Answer is Decrease by $17400.
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