Ask Question
26 June, 16:31

Pisces Company manufactures sonars for fishing boats. Model 100 sells for $ 300. Pisces produces and sells 5 comma 000 units per year. Cost data are as follows: Variable manufacturing $ 95 per unit Variable selling and administrative $ 6 per unit Fixed manufacturing $ 280 comma 000 per year Fixed selling and administrative $ 120 comma 000 per year An offer has come in for a oneminustime sale of 300 units at a special price of $ 120 per unit. The marketing manager says that the sale will not affect the company's regular sales activities, and that it will not require any variable selling and administrative costs. The production manager says that there is plenty of excess capacity and the sale will not impact fixed costs in any way. What is the effect of this deal on operating income

0
Answers (1)
  1. 26 June, 18:23
    0
    Revised Net operating Profit = $595,000 + $7,500 = $602,500

    Thus The net impact of this deal on operating income is increase by $7,500.

    Explanation:

    Present operating income is as follows:

    Sales = $300 X 5,000 = $1,500,000

    Less: Variable Costs

    Manufacturing = $95 X 5,000 = $475,000

    Selling and Administrative = $6 X 5,000 = $30,000

    Contribution margin = $995,000

    Less: Fixed cost

    Manufacturing = $280,000

    Selling & Administrative = $120,000

    Current Operating Income = $595,000

    Provided with new order no selling & administrative cost to be incurred also fixed cost will not change as it is in the capacity fixed.

    In case order is considered

    Additional Revenue shall be as follows:

    Sales = $120 X 300 = $36,000

    Less:

    Variable Manufacturing cost $95 X 300 = $28,500

    Operating Profit = $7,500

    Revised Net operating Profit = $595,000 + $7,500 = $602,500

    Thus The net impact of this deal on operating income is increase by $7,500.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Pisces Company manufactures sonars for fishing boats. Model 100 sells for $ 300. Pisces produces and sells 5 comma 000 units per year. Cost ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers