Canvas Company manufactures sonars for fishing boats.Its Model 70 sells for $310.Canvas produces and sells 5,700 of them per year.Cost data follow:

Alejandro Bauista,the sales manager,wants to offer a special sale to a new customer that outfits boats.He proposes a sale of 41 units at a special price of $150 per unit.Alejandro believes that it will not affect the company's regular sales in the long run because it is a one-time transaction.The sale will require the normal variable costs,both selling and administrative costs and manufacturing costs,but will not impact the fixed costs.The president of the company has some reservations but finally agrees to make the deal if and only if it adds a minimum of $1,600 to operating income.Based on the president's criteria,Canvas will not make the offer.

Question

Canvas Company manufactures sonars for fishing boats.Its Model 70 sells for $310.Canvas produces and sells 5,700 of them per year.Cost data follow:
  
Alejandro Bauista,the sales manager,wants to offer a special sale to a new customer that outfits boats.He proposes a sale of 41 units at a special price of $150 per unit.Alejandro believes that it will not affect the company's regular sales in the long run because it is a one-time transaction.The sale will require the normal variable costs,both selling and administrative costs and manufacturing costs,but will not impact the fixed costs.The president of the company has some reservations but finally agrees to make the deal if and only if it adds a minimum of $1,600 to operating income.Based on the president's criteria,Canvas will not make the offer.

Quizplus · Accepted Answer

11ea86ed_2aed_7f2d_8b27_af11df0740ae_TB3056_00 Less: Expected increase in costs
 11ea86ed_2aed_7f2e_8b27_c92c8044aad5_TB3056_00

Canvas Company Manufactures Sonars for Fishing Boats