Answer:
Ans. The operating profits will increased by $216,683.58 by increasing the sales by 66,000 units ( $1,049,400)
Explanation:
Hi, first we have to consider that Magna has sufficient capacity to handle this additional order, it means that its manufacturing overhead is not going to increase, in other words, our costs of goods sold, for the first 402,000 units are going to be $13/unit (COGS no manufacturing overhead)+ $1,360,000 of fixed manufacturing overhead.
We could do the same with the operating expenses, but there is no use for that since no additional operating expenses (as a whole) need to be added for this additional 66,000 units.
Before this additional 66k sale, this is what we have.
Unit
Amount 402,000
Sales $26 $10,452,000
COGS(no overhead) $13 $5,072,000
Fixes man overhead $3 $1,360,000
Gross Margin $10 $4,020,000
Oper expenses $0.86 $346,300
Fixed Marketing expense $0.29 $116,000
<em><u>Operating profit $3,557,700 </u></em>
<em><u></u></em>
Now, let´s see how it looks when we add this additional 66k units to the P&L statement.
Unit
Amount 468,000
Sales $26 $10,452,000
Sales( at $15.90) $15.9 $ 1,049,400
COGS(no overhead) $13 $5,904,716
Fixes man overhead $3 $1,360,000
Gross Margin $10 $4,236,684
Oper expenses $0.86 $346,300
Fixed Marketing expense $0.29 $116,000
<em><u>Operating profit $3,774,383</u></em>
<em><u></u></em>
Therefore, the company´s operating profits will increase in $216,683.58
($3,774,383.58 - $3,557,700).
Best of luck.
