Explain the following statement is true or false:

Polynesia Company manufactures sonars for fishing boats. Model 70 sells for $300. Polynesia produces and sells 5,500 of them per year. Cost data are as follows:

The sales manager says he has an opportunity to pitch a special sale to a new Canadian fishing company that is outfitting new boats. He proposes a sale of 40 units at a special price of $150 per unit. He says it will not cannibalize the company's regular sales and is a one-time transaction. It will require the normal amount of variable costs, both marketing and manufacturing, but will not impact fixed costs in any way. The president of the company has some reservations, but finally agrees to make the deal if and only if it adds a minimum of $1,500 to operating income. Based on the president's criteria, Polynesia will decline the offer.

Transcribed Image Text:

Variable manufacturing Variable marketing Fixed manufacturing Fixed marketing & admin $100 $15 $280,000 $150,000 per unit per unit per year per year Variable manufacturing Variable marketing Fixed manufacturing Fixed marketing & admin $100 $15 $280,000 $150,000 per unit per unit per year per year

Answer rating: 100% (QA)

TRUE Explanation Incremental ... View the full answer