Peterson Company sells motor oil by the case to automobile repair shops and deal

Question

Peterson Company sells motor oil by the case to automobile repair shops and dealerships. Each case of oil costs Peterson $15. The facility costs are $150,000 per period. Each period, Peterson sells approximately 100,000 cases of motor oil at $25 per case. California Classic Cars is requesting an order of 30,000 cases of motor oil in the next period at a price of $20 per case. If Peterson has excess capacity of 20,000 cases should they accept the offer? No. The profit lost on the regular orders exceeds the proft on the special order. Yes. Additional relevant profits will increase by $50,000 Yes. Additional relevant profits will increase by $150,000 No. Special orders can not be accepted unless there is excess capacity.

Explanation / Answer

Additional Costribution (20000 * 5)

100000

(-) Contribution lost (10000 * 5)

50000

Net Benefit

50000

Yes Additional relevant profit will increase by $50000

Additional Costribution (20000 * 5)

100000

(-) Contribution lost (10000 * 5)

50000

Net Benefit

50000

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