Benjamin Company had the following results of operations for the past year: Sales (16,000 units at $10) $ 160,000 Direct materials and direct labor $ 96,000 Overhead (20% variable) 16,000 Selling and administrative expenses (all fixed) 32,000 (144,000 ) Operating income $ 16,000 A foreign company (whose sales will not affect Benjamin's market) offers to buy 4,000 units at $7.50 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $600 and selling and administrative costs by $300. Assuming Benjamin has excess capacity and accepts the offer, its profits will:

Profits will be $4,300

Explanation:

The computation of profits is shown below:-

Particulars                                                     Amount  

Sales                                                             $30,000

(4,000 × $7.50)

Expense  

Direct material and direct labor     $24,000

(4,000 × $96,000 ÷ $16,000)

(4,000 × 6)

Overheads variable                          $800

(4,000 × 0.20)

Fixed Overheads                              $600  

Selling and administrative expense $300  

Total expense                                                     $25,700  

Profits will be                                                       $4,300

Therefore for computing the profits we simply deduct the total expenses from sales.

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