Lattimer Company had the following results of operations for the past year: $$\begin{array}{l}
\text { Sales } ( 15,000 \text { units at } \$ 12 )&&\$18,000\
\text { Variable manufacturing costs } & \$ 97,500 & \
\text { Fixed manufacturing costs } & 21,000 & \
\text { Selling and administrative expenses (all fixed) } & 36,000 & ( 154,500 ) \
\text { Operating income } & & \$ 25,500
\end{array}$$ A foreign company whose sales will not affect Lattimer's market offers to buy 5,000 units at $7.50 per unit. In addition to existing costs, selling these units would add a $0.25 selling cost for export fees. Lattimer's annual production capacity is 25,000 units. If Lattimer accepts this additional business, the special order will yield a:
A) $3,750 profit.
B) $3,250 loss.
C) $8,250 loss.
D) $2,000 loss.
E) $5,000 profit.

Question

Quizplus · Accepted Answer

The special order will contribute $3,750 to profit. The additional revenue from the special order is $5,000 (5,000 units x $7.50 per unit). The additional variable cost is $1,250 (5,000 units x $0.25 per unit). The additional fixed cost is $0. Therefore, the additional profit is $3,750 ($5,000 - $1,250).

Lattimer Company Had the Following Results of Operations for the Past