Lattimer Company had the following results of operations for the past year: A fo

Question

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

A foreign company whose sales will not affect Lattimer's market offers to buy 5,900 units at $8.40 per unit. In addition to existing costs, selling these units would add a $0.34 selling cost for export fees. Lattimer’s annual production capacity is 25,000 units. If Lattimer accepts this additional business, the special order will yield a:

$4,366loss

$10,266loss

$2,360loss

$6,549profit

$8,555profit

Sales (15,000 units at $12.45) $ 186,750 Variable manufacturing costs $ 104,250 Fixed manufacturing costs 27,750 Selling and administrative expenses (all fixed) 42,750 (174,750 ) Operating income

Explanation / Answer

If Lattimer accepts this additional business, the special order will yield a:

so answer is d) $6549 Profit

Incremental revenue (5900*8.40) 49560 Less: Incremental cost Variable manufacturing cost (5900*6.95) (41005) Selling cost (5900*.34) (2006) Incremental profit 6549

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