Question

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

Sales (8,000 units at $20.70)				$	165,600
Variable manufacturing costs	$	88,800
Fixed manufacturing costs		15,700
Variable selling and administrative expenses		14,800
Fixed selling and administrative expenses		20,700			(140,000	)
Operating income				$	25,600

A foreign company whose sales will not affect Markson's market offers to buy 2,000 units at $15.05 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $1,670 for the purchase of special tools. Markson’s annual productive capacity is 12,000 units. If Markson accepts this additional business, its profits will:

Multiple Choice

• Decrease by $1,670.

• Decrease by $5,870.

• Decrease by $4,900.

• Increase by $4,200.

• Increase by $2,530.

Answer 1

Incremental Revenue	$          30,100	=2000*15.05
Incremental Variable Manufacturing Costs	$        -22,200	=-2000*11.1
Incremental Variable Selling Expenses	$           -3,700	=-2000*1.85
Incremental Fixed Costs	$           -1,670
Incremental Income	$            2,530

Answer is e. Increase by $2,530.