Variations Company had the following results of operations for the past year: Sales (8,000 units at $7 per unit)$ 56,000Variable manufacturing costs(30,000)Fixed manufacturing costs(6,000)Fixed selling and administrative expenses (4,500)Operating income $ 15,500?A foreign company offers to buy 700 units at $4 per unit. In addition to variable manufacturing costs, there would be an export cost of $0.30 per unit. Prepare an analysis of this additional business to show whether Variations should take this order.
What will be an ideal response?
| Incremental revenues and costs Sales (700 * $4) | ? | $2,800 |
| Variable manufacturing costs ($30,000/8,000) * 700 | $2,625 | ? |
| Additional export cost (700 * $0.30) | 210 | (2,835) |
| Decrease in operating income | ? | $ (35) |
Thus, since operating income would decrease by $35, Variations should not take the order.
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