Polynesia Company manufactures sonars for fishing boats.Model 70 sells for $260.Polynesia produces and sells 5 600 of them per year.Cost data are as follows:
$$\begin{array} { | l | l | l | }
\hline \text { Variable manufacturing } & \$ 110 & \text { per unit } \
\hline \text { Variable marketing } & \$ 17 & \text { per unit } \
\hline \text { Fixed manufacturing } & \$ 290000 & \text { per year } \
\hline \text { Fixed marketing \& admin } & \$ 150000 & \text { per year } \
\hline
\end{array}$$
A potential deal has come up for a one-time sale of 34 units at a special price of $110 per unit.The marketing manager says that the sale will not negatively impact the company's regular sales activities,but it will require the normal amount of variable marketing costs.The production manager says that there is plenty of excess capacity and the deal will not impact fixed costs in any way.The management accountant points out,however,that because the incremental revenues are just equal to the incremental costs to fill the order,the deal will not have any impact on the bottom line.The management accountant is correct in his statement.

Question

Polynesia Company manufactures sonars for fishing boats.Model 70 sells for $260.Polynesia produces and sells 5 600 of them per year.Cost data are as follows:
 $$\begin{array} { | l | l | l | } 
\hline \text { Variable manufacturing } & \$ 110 & \text { per unit } \
\hline \text { Variable marketing } & \$ 17 & \text { per unit } \
\hline \text { Fixed manufacturing } & \$ 290000 & \text { per year } \
\hline \text { Fixed marketing \& admin } & \$ 150000 & \text { per year } \
\hline
\end{array}$$ 
A potential deal has come up for a one-time sale of 34 units at a special price of $110 per unit.The marketing manager says that the sale will not negatively impact the company's regular sales activities,but it will require the normal amount of variable marketing costs.The production manager says that there is plenty of excess capacity and the deal will not impact fixed costs in any way.The management accountant points out,however,that because the incremental revenues are just equal to the incremental costs to fill the order,the deal will not have any impact on the bottom line.The management accountant is correct in his statement.

Quizplus · Accepted Answer

The management accountant is incorrect because the incremental revenue from the sale is $110 per unit, while the incremental cost is $127 per unit ($110 variable manufacturing + $17 variable marketing), resulting in a loss of $17 per unit.

Polynesia Company Manufactures Sonars for Fishing Boats A Potential Deal Has Come Up for a One-Time Sale