Leno company manufactures toasters, For the first 8 months of 2014, the company

Question

Leno company manufactures toasters, For the first 8 months of 2014, the company reported the following operating results while operating at 75% of plant capacity: Cost of goods sold was 70% variable and 30% fixed; operating expenses were 75% variable and 25% fixed. In September, Leno Company receives a special order for toasters at $7.9 each from Centro Company of Cludad Juarez. Acceptance of the order would result in an additional $3,000 of shipping costs but no increase in fixed operating expenses.

Explanation / Answer

**in question you placed curson on additional order quantity. as per my view it is 24,600. if its not 24,600 change 24,600 in workings

Reject Order Accept Order Net income increase (Decrease) Revenues                                            43,83,200 4,383,200+(24,600*7.9) = 4,577,540 4,577,540-4,383,200 = $194,340 Cost of goods sold Variable 2,607,000*70% = 1,824,900 1,824,900/351,500*(351,500+24,600) = 1,952,617 1,824,900-1,952,617 = -$127,717 Fixed 2,607,000-1,824,900 = $782,100                                                                                        7,82,100                                                                -   Operating expenses Variable 839,200*75% = 629,400 629,400/351,500*(351,500+24,600)+3,000 = 676,449 629,400-676,449 = -$47,049 Fixed 839,200 - 629,400 = 209,800                                                                                        2,09,800                                                                -   Net Income                                               9,37,000                                                                                        9,56,574                                                     -19,574

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