Variations Company Had the Following Results of Operations for the Past

question 144

Essay

Variations Company had the following results of operations for the past year:
$$\begin{array} { l | l } \text { Sales (8,000 units at \$7.00) } & \$ 56,000 \\\hline \text { Variable manufacturing costs } & ( 30,000 ) \\\hline \text { Fixed manufacturing costs } & ( 6,000 ) \\\hline \text { Fixed selling and adrinistrative expenses } & ( 4,500 ) \\\hline \text { Operating income } & \$ 15,500 \\\hline\end{array}$$ A foreign company (whose sales will not affect Variations' regular sales) offers to buy 700 units at
$4.00 per unit. In addition to variable manufacturing costs, there would be an export cost of $0.30 per unit. Prepare an analysis of this additional business to show whether Variations should take this order.

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Definitions:

Useful Life

The estimated period over which an asset is expected to be usable by a business.

Purchase Machinery

The acquisition of machines or equipment for the production of goods or services.

Discount Rate

This is the discount rate used in the process of discounted cash flow analysis to find out the current value of cash flows expected in the future.

Annual Cost Savings

The reduction in costs achieved during a fiscal year, often as a result of process improvements or cost-cutting measures.