ezt0.mneducation.com/ nm. Pietarsaari Oy, a Finnish company, produces cross-coun
ID: 2493976 • Letter: E
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ezt0.mneducation.com/ nm. Pietarsaari Oy, a Finnish company, produces cross-country ski poles that it sells for 32 a pair. (The Finnish unit of currency, the euro, is denoted by .) Operating at capacity, the company can produce 53,000 pairs of ski poles a year. Costs associated with this level of production and sales are given below: B 424,000 159.000 53.000 265.000 53000 212.000 Direct materials Direct labor Variable selling expense Fixed selling expense Total cost 22 1,166.000 Required The Finnish army would like to make a one-time-only purchase of 9,700 pairs of ski poles for its mountain troops. The army would pay a fixed fee of 5 per pair, and in addition t would reimburse the Pietarsaari Oy company for its unit manufacturing costs (both fixed and variable). Due to a recession, the company would otherwise produce and sell only 43,300 pairs of ski poles this year. Tota fixed manufacturing overhead cost would be the same whether 43,300 pairs or 53,000 pairs of ski poles were produced.) The company would not incur its usual variable selling expenses with this special order If the Pietarsaari Oy company accepts the army's offer, by how much would net operating income increase or decrease from what it would be if only 43,300 pairs of ski poles were produced and sold during the year? (Input the amount as a positive value. Omit the "" sign in your response.) to select) in net operating income Assume the same situation as described in (1) above, except that the company is already operating at capacity and could sell 53,000 pairs of ski poles through regular channels. Thus accepting the army's offer would require giving up sales of 9,700 pairs at the normal price of €32 a pair. If the army s offer is accepted, by how much will net operating income increase or decrease from what it would be if the 9,700 pairs were sold through regular channels? (Input the amount as a positive value. Omit the "" sign in your response.) to select) in net operating incomeExplanation / Answer
Answer 1. Statement of Increase in Profit of Pietarsaari If order of Finnish Army is accepted Special Order - Finnish Army Sales of Ski Poles in Units 9700 Sales price per Unit 5 Sales 48,500 Reimbursement of expenses 164,900 Total revenue 213,400 Less: Direct Material 77,600 Direct Labour 29,100 Variable Manufacturing Overhead 9,700 Total expenses 116,400 Incremental Profit 97,000 Answer 2. Statement of Increase in Profit of Pietarsaari If order of Finnish Army is accepted Special Order - Finnish Army Sales of Ski Poles in Units 9700 Sales to Finnish Army (5 X 9700) 48,500 Reimbursement of expenses 164,900 Loss of Revenue or Sale due to Normal Channel (310,400) Saving in Variable Selling expenses 9,700 Incremental Profit / (Loss) (87,300)
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