Polynesia Company manufactures sonars for fishing boats.Its Model 70 sells for $300.Polynesia produces and sells 5,700 of them per year.Cost data follow:

Arthur Bailey,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.Arthur 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 $1,700 to operating income.Based on the president's criteria,Polynesia will not make the offer.

Question

Polynesia Company manufactures sonars for fishing boats.Its Model 70 sells for $300.Polynesia produces and sells 5,700 of them per year.Cost data follow:
  
Arthur Bailey,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.Arthur 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 $1,700 to operating income.Based on the president's criteria,Polynesia will not make the offer.

Quizplus · Accepted Answer

11ea8a42_4fba_fab3_8b44_e34fb908fe91_TB5024_00 Less: Expected increase in costs
 11ea8a42_4fba_fab4_8b44_6d33ee1601d2_TB5024_00

Polynesia Company Manufactures Sonars for Fishing Boats