Answers
James & Co. estimates that 70% of Cost of goods sold is variable manufacturing costs and 60% of Operating expenses are fixed costs.
Total Variable Cost of goods sold = 600,000 x 70%
= $420,000
Variable Cost of goods sold per unit = Total Variable Cost of goods sold/Number of units sold
= 420,000/25,000
= $16.8
60% of Operating expenses are fixed costs, it means remaining 40% are variable costs.
Total Variable operating expenses = 200,000 x 40%
= $80,000
Variable operating expenses per unit = Total Variable operating expenses/Number of units sold
= 80,000/25,000
= $3.2
Due to the acceptance of special order, only variable costs will increase and fixed costs will remain unaffected.
Special order analysis
| Sales revenue (4,000 x 18) | 72,000 |
| Less: Expenses: | |
| Variable Cost of goods sold (4,000 x 16.80) | - 67,200 |
| Variable operating expenses (4,000 x 3.20) | - 12,800 |
| Net loss | - $8,000 |
11.
If the special order is accepted, net income will decrease.
Correct option is (b)
12.
From the above analysis, it can be seen that net income will decrease by $8,000
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