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 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. Decrease by $300.
C. Increase by $15,000.
D. Increase by $4,500.
E. Decrease by $4,500.
Answer: A
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What will be an ideal response?
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