The Arthur Company manufactures kitchen utensils. The company is currently producing well below its full capacity. The Benton Company has approached Arthur with an offer to buy 16,000 utensils at $0.70 each. Arthur sells its utensils wholesale for $0.80 each; the average cost per unit is $0.78, of which $0.15 is fixed costs. If Arthur were to accept Benton's offer, what would be the increase in Arthur's operating profits?

The increase in Arthur's operating profits would be $1120.

Step-by-step explanation:

Given:

The Arthur Company manufactures kitchen utensils. The company is currently producing well below its full capacity. The Benton Company has approached Arthur with an offer to buy 16,000 utensils at $0.70 each. Arthur sells its utensils wholesale for $0.80 each; the average cost per unit is $0.78, of which $0.15 is fixed costs.

If Arthur were to accept Benton's offer.

Now, to find the increase in Arthur's operating profits.

The average cost per unit = $0.78.

The fixed costs = $0.15.

So, to get the variable cost we subtract the fixed cost from the average cost per unit:

Thus, the variable cost is $0.63.

As, the Benton Company has approached Arthur with an offer to buy 16,000 utensils at $0.70 each.

So, to get the profit per unit we subtract $0.70 from the variable cost:

Profit per unit = $0.07.

Number of utensils = 16,000.

Now, to get the total profit we put formula:

Total profit = Number of utensils × Profit per unit.

Therefore, the increase in Arthur's operating profits would be $1120.