Lattimer Company had the following results of operations for the past year: $$\begin{array} { l r r r }
\text { Sales } ( 15,000 \text { units at } \$ 12 ) & & \$ 180,000 \
\text { Variable manufacturing costs } & \$ 97,500 & \
\text { Fixed manufacturing costs } & 21,000 & \
\text { Selling and administrative expenses (all fixed) } & 36,000 & ( 154,500 ) \
\hline \text { Operating income } & & \$ 25,500 \
\hline \hline
\end{array}$$A foreign company offers to buy 5,000 units at $7.50 per unit.In addition to existing costs,selling these units would add a $0.25 selling cost for export fees.Lattimer's annual production capacity is 25,000 units.If Lattimer accepts this additional business,the special order will yield a:
A)$2,000 loss.
B)$8,250 loss.
C)$3,750 profit.
D)$3,250 loss.
E)$5,000 profit.

Question

Lattimer Company had the following results of operations for the past year: $$\begin{array} { l r r r } 
\text { Sales } ( 15,000 \text { units at } \$ 12 ) & & \$ 180,000 \
\text { Variable manufacturing costs } & \$ 97,500 & \
\text { Fixed manufacturing costs } & 21,000 & \
\text { Selling and administrative expenses (all fixed) } & 36,000 & ( 154,500 ) \
\hline \text { Operating income } & & \$ 25,500 \
\hline \hline
\end{array}$$A foreign company offers to buy 5,000 units at $7.50 per unit.In addition to existing costs,selling these units would add a $0.25 selling cost for export fees.Lattimer's annual production capacity is 25,000 units.If Lattimer accepts this additional business,the special order will yield a:
A)$2,000 loss.
B)$8,250 loss.
C)$3,750 profit.
D)$3,250 loss.
E)$5,000 profit.

Quizplus · Accepted Answer

The special order will yield a profit because the variable cost per unit is $6.50 ($97,500 / 15,000 units), and the additional selling cost per unit is $0.25, making the total cost per unit $6.75. Selling at $7.50 per unit results in a profit of $0.75 per unit. For 5,000 units, this amounts to a $3,750 profit ($0.75 * 5,000 units).

Lattimer Company Had the Following Results of Operations for the Past