Potlatch Company manufactures sonars for fishing boats. Model 100 sells for $200. Potlatch produces and sells 5,000 of them per year. Cost data are as follows:

An offer has come in for a one-time sale of 100 units at a special price of $120 per unit. The marketing manager says that the sale will not negatively affect the company's regular sales activities, and that it will not require any variable marketing costs. The production manager says that there is plenty of excess capacity and the deal will not impact fixed costs in any way. What is the effect of this deal on operating income?

A) Increase $200

B) Increase $500

C) Decrease $1,000

D) Increase $1,500

Transcribed Image Text:

Variable manufacturing Variable marketing Fixed manufacturing Fixed marketing & admin $105 $5 $270,000 $140,000 per unit per unit per year per year Variable manufacturing Variable marketing Fixed manufacturing Fixed marketing & admin $105 $5 $270,000 $140,000 per unit per unit per year per year

Answer rating: 100% (QA)

D Increase 1500 Explan... View the full answer