Question

The following information relates to the Magna Company for the upcoming year, based on 402,000 units. Amount Per Unit Sales $ 8,844,000 $ 22.00 Cost of goods sold 5,628,000 14.00 Gross margin 3,216,000 8.00 Operating expenses 422,100 1.05 Operating profits $ 2,793,900 $ 6.95 The cost of goods sold includes $1,320,000 of fixed manufacturing overhead; the operating expenses include $112,000 of fixed marketing expenses. A special order offering to buy 62,000 units for $13.80 per unit has been made to Magna. Fortunately, there will be no additional operating expenses associated with the order and Magna has sufficient capacity to handle the order. How much will operating profits be increased if Magna accepts the special order

Answer 1

Answer:

$143,356

Explanation:

The computation of the increased in the operating income if the special order is accepted is

Sales    (62,000 units × $13.80)      $855,600

Less: cost of goods sold -$664,418

($5,628,000 - $1,320,000) ÷ 402,000 units × 62,000 units

Less: Operating expenses -$47,826

($422,100 - $112,000) ÷ 402,000 units × 62,000 units

Operating income               $143,356

We simply deduct the operating expenses and the cost of goods sold from the sales revenue so that the increase in operating income could come