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Question
Thompson 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 Thompson'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. If Thompson accepts the offer, its profits will:
A. Increase by $30,000
B. Increase by $ 6,000
C. Decrease by $ 6,000
D. Increase by $ 5,200
E. Increase by $ 4,300
Answer
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