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Question
Cornish Company had the following results of operations for the past year:| Sales (20,000 units at $22) | $440,000 | ||
| Direct materials and direct labor | $200,000 | ||
| Overhead (40% variable) | 100,000 | ||
| Selling and administrative expenses (all fixed) | 92,000 | (392,000 | ) |
| Operating income | $ 48,000 | ||
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.Decrease by $4,500.
B.Increase by $4,500.
C.Decrease by $300.
D.Increase by $13,500.
E.Increase by $15,000.
Answer
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