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

question 32

Essay

Peters, Inc. sells a single product and reports the following results from sales of 100,000 units: $\begin{array}{ll}\text { Sales ( } \$ 45 / \text { unit) } & \$ 4,500,000 \\\text { Less costs and expenses: } & \\\text { Direct materials ( } \$ 16 / \text { unit) } & \$ 1,600,000\\\text { Direct labor }(\$ 9 / \text { unit) } & 900,000 \\\text { Variable overhead (\$3/unit) } & 300,000 \\\text { Fixed overhead }(\$ 8.10 / \text { unit) } & 810,000 \\\text { Variable administrative }(\$ 4.50 / \text { unit) } & 450,000 \\\text { Fixed administrative }(\$ 4 / \text { unit) } & 400,000\\\text { Total costs and expenses }&\$(4,460,000)\\\text { Operating income }&\$40,000\end{array}$
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, Ryder 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:
(1) Should Peters accept the order if it does not affect regular sales? Explain.
(2) 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:

Vicious-Circle-Of-Poverty

A self-perpetuating condition where poverty leads to circumstances that perpetuate poverty, making it difficult to break the cycle.

Capital Stock

For a single firm, the current market value of the firm’s plant, equipment, inventories, and intangible assets.

Economic Policies

Strategies and decisions by governments concerning the monetary system, taxation, market regulations, and public spending to influence the economy.

Goods And Services

The output of an economy that is provided to consumers, including tangible products (goods) and intangible items (services).