Cornish Company had the following results of operations for the past year:
$\begin{array}{l}
\text { Sales }(20,000 \text { units at } \$ 22) &&\$440,000 \
\text { Direct materials and cirect } 1 \text { abor } &\$ 200,000 \
\text { Overhead (40\% variable) } & 100,000\
\text { Selling and administrative expenses (all fixed) } & 92,000&(392,000)\
\text { Operating income }&&\$48,000
\end{array}$ A foreign company (whose sales will not affect Cornish's market) offers to buy 3,000 units at $17.00 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $500 and selling and administrative costs by $1,000. If Cornish accepts the offer, its profits will:
A) Increase by $13,500.
B) Increase by $4,500.
C) Decrease by $4,500.
D) Increase by $15,000.
E) Decrease by $300.

Question

Cornish Company had the following results of operations for the past year:
 $\begin{array}{l}
\text { Sales }(20,000 \text { units at } \$ 22) &&\$440,000  \
\text { Direct materials and cirect } 1 \text { abor } &\$ 200,000  \
\text { Overhead (40\% variable) } & 100,000\
 \text { Selling and administrative expenses (all fixed) } & 92,000&(392,000)\
\text { Operating income }&&\$48,000
\end{array}$ A foreign company (whose sales will not affect Cornish's market) offers to buy 3,000 units at $17.00 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $500 and selling and administrative costs by $1,000. If Cornish accepts the offer, its profits will: 
A) Increase by $13,500.
B) Increase by $4,500.
C) Decrease by $4,500.
D) Increase by $15,000.
E) Decrease by $300.

Quizplus · Accepted Answer

The contribution margin per unit is $22 - $12 - $4 = $6. The additional fixed costs are $500 + $1,000 = $1,500. The additional profit is 3,000 units * $6 - $1,500 = $13,500.

Cornish Company Had the Following Results of Operations for the Past