Felter Company produced and sold 50,000 units of product and is operating at 70%
ID: 2461001 • Letter: F
Question
Felter Company produced and sold 50,000 units of product and is operating at 70% of plant capacity. Unit information about its product is as follows:
Sales price
$70
Variable manufacturing cost
$45
Fixed manufacturing cost ($500,000 ÷ 50,000)
10
55
Profit per unit
$15
The company received a proposal from a foreign company to buy 10,000 units of Felter Company's product for $50 per unit. This is a one-time only order and acceptance of this proposal will not affect the company's regular sales. The president of Felter Company is reluctant to accept the proposal because he is concerned that the company will lose money on the special order.
Instructions: Use commas but NO dollar signs.
1. What will NI from this order be if the order is rejected?
2. What will NI form this order be if the order is accepted?
3. Should they accept the order?
Sales price
$70
Explanation / Answer
Fixed cost is fixed in nature.It has to be incurred at all cost even whether product is produced or not.
In the normal business profit per unit is $ 15
Profit if offer rejected = $ 15 * 50000 = $ 750000
The company received a proposal from a foreign company to buy 10,000 units of Felter Company's product for $50 per, unit.
Revenue ( 10,000 @ $ 50 per unit) 500,000
Less Cost (10,000 @ $ 45 per unit ) 450,000
Profit 50000
Total profit if this offer accepted = $ (750,000 +50,000)
= $ 800,000
Yes he shoul accept this offer
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