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: A foreign company has offered to make a one-time purchase of 20 units at a price of $150 per unit. The marketing manager says that this sale will not affect Potlatch's normal sales activity, and it will not require any variable marketing costs. The production manager says that the company is working nearly at capacity and will have to take on additional fixed costs of $1,000 per year in order to accommodate the deal. If Potlatch accepts the sale, how will it affect operating income?

Question

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:  A foreign company has offered to make a one-time purchase of 20 units at a price of $150 per unit. The marketing manager says that this sale will not affect Potlatch's normal sales activity, and it will not require any variable marketing costs. The production manager says that the company is working nearly at capacity and will have to take on additional fixed costs of $1,000 per year in order to accommodate the deal. If Potlatch accepts the sale, how will it affect operating income?

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The Answer of 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:  A foreign company has offered to make a one-time purchase of 20 units at a price of $150 per unit. The marketing manager says that this sale will not affect Potlatch's normal sales activity, and it will not require any variable marketing costs. The production manager says that the company is working nearly at capacity and will have to take on additional fixed costs of $1,000 per year in order to accommodate the deal. If Potlatch accepts the sale, how will it affect operating income?

Potlatch Company Manufactures Sonars for Fishing Boats