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:
-An African cell phone company has offered a one-time deal to buy 200 units for a specially reduced price of $210 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 variable selling & marketing costs. The production manager reports that it would require an additional $25,000 of fixed manufacturing costs to accommodate the specifications of the buyer. 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:  
-An African cell phone company has offered a one-time deal to buy 200 units for a specially reduced price of $210 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 variable selling & marketing costs. The production manager reports that it would require an additional $25,000 of fixed manufacturing costs to accommodate the specifications of the buyer. If Grove accepts the deal, how will this impact operating income?

Quizplus · Accepted Answer

D) Calculations:
200 × $210 = $42,000
$1,000,000 / 10,000 = $100
200 × $100 = $20,000
$42,000 - $20,000 - $25,000 = ($3,000)

Grove Company Makes Special Equipment Used in Cell Towers