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

question 6

Essay

Peters,Inc.sells a single product and reports the following results from sales of 100,000 units:
$\begin{array}{lr}\text { Sales (\$45/unit)}&\$4,500,000\\\text { Less costs and expenses:}\\\text { Direct materials (\$16/unit) } & \$ 1,600,000 \\\text { Direct labor (\$9/unit) } & 900,000 \\\text { Variable overhead (\$3/unit) } & 300,000 \\\text { Fixed overhead (\$8.10/unit) } & 810,000 \\\text { Variable administrative }(\$ 4.50 / \text { unit) } & 450,000 \\\text { Fixed administrative (\$4/unit) } & 400,000 \\\text { Total costs and expenses } & \underline{\$(4,460,000} )\\\text { Operating income } & \$ 40,000\end{array}$

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:

Budgeted Sales

The amount of revenue that a company plans or expects to generate from the sale of goods or services during a specific period.

Net Operating Income

The profit realized from a business's operations after deducting operating expenses like wages, depreciation, and cost of goods sold.

Units

Basic quantities of a product produced or used by a company in its operations.

Advertising Budget

The allocation of funds towards marketing and promotional activities aimed at promoting products or services.