Question

The following information relates to the Jasmine Company for the upcoming year, based on 436,000 units: Sales Cost of goods sold Gross margin Operating expenses Operating profits Amount $8,720,800 6,976,000 1,744,000 1,140,000 $ 604,000 Per Unit $92.00 52.00 40.00 10.50 $29.50 The cost of goods sold includes $2,223,600 of fixed manufacturing overhead; the operating expenses include $311,600 of fixed marketing expenses. A special order offering to buy 86,000 units for $22.20 per unit has been made to Jasmine. Fortunately, there will be no additional fixed costs associated with the order and Jasmine has sufficient capacity to handle the order. How much will operating profits increase if Jasmine accepts the special order?

Answer 1

Let us calculate variable cost per unit
Cost of goods sold	$    10.90
[(6976000-2223600)/436000)
Oerating Expenses	$       1.90
[($1140000-311600)/436000]
Total	$    12.80
Special Order sales price	$    22.20
Less:
Variable cost per unit	$    12.80
Contribution margin per unit	$       9.40
Therefore operating profit would increase due to special order
=86000 units*$9.40
=$808400