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:

Semantic Role

The part that each phrase plays in the “who did what to whom” drama described by a sentence. One word takes the role of being the cause of the action, another, its effect, and so on.

Predicate

The part of a sentence or clause containing a verb and stating something about the subject (e.g., 'ran' in 'the dog ran').

Phrase Structure

The hierarchical organization of syntax within a sentence that dictates the order and combination of words to form phrases and clauses.

Ambiguity

The quality of being open to more than one interpretation, explanation, or meaning.