Peters, Inc A Foreign Company Wants to Purchase 15,000 Units

question 17

Essay

Peters, Inc.sells a single product and reports the following results from sales of 100,000 units:
$\begin{array}{lr}\text { Sales (\$45/unit) } & \$ 4,500,000 \\\text { Less costs and expenses: }\\\text { Direct materials }(\$ 16 / \text { unit) } & \$ 1,600,000 \\\text { Direct labor }(\$ 9 / \text { unit) } & 900,000 \\\text { Variable overhead (\$3/unit) } & 300,000 \\\text { Fixed overhead ( } \$ 8.10 / \text { unit) } & 810,000 \\\text { Variable administrative (\$4.50/unit) } & 450,000 \\\text { Fixed administrative ( } \$ 4 / \text { unit) } &\underline{400,000}\\\text { Total costs and expenses } & \underline{\$(4,460,000)} \\\text { perating income } & \underline{\$ 40,000}\end{array}$ A foreign company wants to purchase 15,000 units.However, they are willing to pay only $36 per unit for this one-time order.They also agree to pay all freight costs.To fill the order, Peters will incur normal production costs.Total fixed overhead will have to be increased by $60,000 to pay for equipment rentals and insurance.No additional administrative costs (variable or fixed)will be incurred in association with this special order.
Required:
a.Should Peters accept the order if it does not affect regular sales? Explain.
b.Assume that Peters can accept the special order only by giving up 5,000 units of its normal sales.Should Peters accept the special order under these circumstances?

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Definitions:

Employment Contract

A legally binding agreement between an employer and an employee outlining the terms and conditions of employment.

Union Organization

A group formed by workers in various industries to collectively bargain for better wages, working conditions, and other employment rights.

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The official recognition or approval given, typically by a regulatory body, indicating that an individual or organization has met certain standards.

Employment Insurance Premiums

Contributions paid by employees and employers into a government program that provides temporary financial assistance to unemployed workers.