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:

Window

An opening in a wall or structure, typically filled with glass, that lets light and air into the space and allows occupants to see out.

Opening

An initial part or opportunity in various contexts, such as in an argument, a job, or an anatomical structure.

Aseptic Technique

A set of practices and procedures performed under sterile conditions to prevent contamination and infection.

Contamination

The presence of an unwanted substance or microorganism which makes something impure or hazardous.