Grove Company makes special equipment used in cell towers. Each unit sells for $400. Grove uses just-in-time inventory procedures; they produce and sell 10,000 units per year. They have provided the following income statement data:
- A foreign company has offered to buy 80 units for a reduced price of $300 per unit. The marketing manager says the sale will not negatively impact the company's regular sales. The sales manager says that this sale will not require any incremental selling & administrative costs, as it is a one-time deal. The production manager reports that there is plenty of excess capacity to accommodate the deal without requiring any additional fixed costs. If Grove accepts the deal, how will this impact operating income?

Question

Grove Company makes special equipment used in cell towers. Each unit sells for $400. Grove uses just-in-time inventory procedures; they produce and sell 10,000 units per year. They have provided the following income statement data: 
- A foreign company has offered to buy 80 units for a reduced price of $300 per unit. The marketing manager says the sale will not negatively impact the company's regular sales. The sales manager says that this sale will not require any incremental selling & administrative costs, as it is a one-time deal. The production manager reports that there is plenty of excess capacity to accommodate the deal without requiring any additional fixed costs. If Grove accepts the deal, how will this impact operating income?

Quizplus · Accepted Answer

A) Calculations:
80 × $300 = $24,000
$1,000,000 / 10,000 = $100
80 × $100 = $8,000
$24,000 - $8,000 = $16,000

Grove Company Makes Special Equipment Used in Cell Towers