Potlatch Company Manufactures Sonars for Fishing Boats -
the Sales Manager Says He Has an Opportunity

Potlatch Company manufactures sonars for fishing boats. Model 100 sells for $200. Potlatch produces and sells 5,000 of them per year. Cost data are as follows:
$$\begin{array} {| l | r | r | } \hline\text { Variable manufarturing } & \$ 105.00 & \text { Per unit } \\\hline \text { Variable marketing } & \$ 5.00 & \text { Per unit } \\\hline \text { Fixed manufacturing } & \$ 270,000 & \text { Per year } \\\hline \text { Fixed marketing \& admin } & \$ 140,000 & \text { Per year } \\\hline\end{array}$$
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The sales manager says he has an opportunity to pitch a special sale to a new Canadian fishing company that is outfitting new boats. He proposes a sale of 30 units at a special price of $140 per unit. He says it will not cannibalize the company's regular sales and is a one-time transaction. It will require the normal amount of variable costs, both marketing and manufacturing, but will not impact fixed costs in any way. The president of the company has some reservations, but finally agrees to make the deal if and only if it adds a minimum of $1,000 to operating income. Based on the president's criteria, Potlatch will decline the offer.