Texas Controls Inc. began operations in 2016 to manufacture a single product. There are no ending work in process inventories. Relevant data for the year follow:
OPERATING DATA FOR 2016
Quantities:
Beginning inventories, finished goods ........................................................ -0-
Units produced during the year ................................................................ 6,900
Units sold during the year ...................................................................... 6,000
Costs:
Direct materials ($34 per unit) ................................................................ $234,600
Direct labor ($32 per unit) ..................................................................... 220,800
Variable factory overhead ($20 per unit) ................................................... 138,000
Fixed factory overhead ....................................................................... 66,000
Variable selling and administrative expenses ($19 per unit) ............................ 114,000
Fixed selling and administrative expenses ................................................ 85,000
Selling price for each unit ................................................................... 141
INSTRUCTIONS
1. Prepare an income statement for 2016, using direct costing.
2. Assume that the company has an opportunity to sell 900 units of the product in a foreign country for $116 per unit. No fixed or variable selling and administrative expenses would be incurred in connection with these units except shipping costs of $18 per unit and miscellaneous administrative expenses of $3 per unit. The company has idle capacity, and the order would not affect present markets. Would it be profitable for the company to accept the order? Show all computations.
Analyze: What percentage of the foreign sales order would be realized as marginal income?