Answer:
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
