5-A1 Special Order - Income increase/decrease 5-A1 Special Order Consider the fo

Question

5-A1 Special Order - Income increase/decrease

5-A1 Special Order Consider the following details of the income statement of the Manteray Pen Company (MPC) for last year: Sales Less cost of goods sold Gross margin or gross profit Less selling and administrative expenses Operating income $10,000.000 6,000,000 $4,000,000 3,300,000 700,000 cturing costs were $2.4 million and its fixed selling and administrative costs MPC's fixed manufa were $2.5 million. Sales commissions of3% of sales are expenses included in selling and administrative

Explanation / Answer

Variable cost of goods sold per pen = (6000000-2400000)/2000000= 1.8 Variable selling and administrative expenses per pen = (3300000-2500000)/2000000= 0.4 Commission per pen = (10000000*3%)/2000000= 0.15 1 Incremental revenue 660000 Less: Variable costs: Variable cost of goods 300000 =150000*(1.8+0.2) Variable selling and administrative expense 37500 =150000*(0.4-0.15) Incremental income(loss) 322500 Income will increase by $322500

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