Lattimer Company had the following results of operations for the past year

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

Contribution margin income statement    Per Unit    Annual Total
Sales (15,000 units)    $ 12.00    $ 180,000
Variable costs         
Direct materials    1.50    22,500
Direct labor    4.00    60,000
Overhead    1.00    15,000
Contribution margin    5.50    82,500
Fixed costs         
Fixed overhead    1.00    15,000
Fixed selling and administrative expenses    1.40    21,000
Income    $ 3.10    $ 46,500

A foreign company offers to buy 5,000 units at $7.50 per unit. In addition to variable costs, selling these units would add a $0.25 selling expense for export fees. Lattimer’s annual production capacity is 25,000 units. If Lattimer accepts this additional business, the special order will yield a:

Multiple Choice

$3,750 profit. Correct

$8,250 loss.


$5,000 profit.


$2,000 loss.


$3,250 loss.

Explanation
Special Offer Analysis    Per Unit    Total
Sales (5,000 units)    $ 7.50    37,500
Variable costs         
Direct materials    1.50    7,500
Direct labor    4.00    20,000
Variable overhead    1.00    5,000
Contribution margin    1.00    5,000
Fixed costs         
Fixed selling and administrative expenses (incremental)    0.25    1,250
Income    $ 0.75    $ 3,750

 

Thanks