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


Thompson Company had the following results of operations for the past year:  
  Sales (24,000 units at $16.5)
$396,000
  Direct materials and direct labor $180,000
  Overhead (20% variable) 42,000
  Selling and administrative expenses (all fixed) 84,000 (306,000)
  Operating income
$90,000
 
A foreign company (whose sales will not affect Thompson's market) offers to buy 5,500 units at $14.0 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $1,350 and selling and administrative costs by $1,050. If Thompson accepts the offer, its profits will:

Increase by $31,425.

Increase by $77,000.

Increase by $34,650.

Decrease by $35,750.

Increase by $35,750.   
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    Best answer
  • M V N D BHAVANI
    M V N D BHAVANI answered this 43 minutes later
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    229 answers • 66% Best Answer
    Last Year Variable and Overhead Costs Per Unit:
    Total Variable Cost Per Unit = (Variable Cost + Overhead Costs)\div Units Sold
    Total Variable Cost Per Unit = (180,000 + (42,000\times 0.2))\div 24,000
    Total Variable Cost Per Unit = (180,000 +8,400)\div 24,000
    Total Variable Cost Per Unit = 188,400\div 24,000
    Total Variable Cost Per Unit = 7.85
    Total Cost for 5,500 Units:
    Total Cost =(7.85\times 5,500) +1,350+1,050
    Total Cost =43,175 +1,350+1,050
    Total Cost =45,575
    Profit = Sales-Total Costs
    Profit = (5,500\times 14)- 45,575
    Profit = 77,000- 45,575
    Profit = 31,425
    Therefore the profits would increase by $31,425.
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  • Mason Lewis
    Mason Lewis Chegg expert answered this 1 hour later
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    223 answers • 75% Best Answer
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