Peters Company makes a product that regularly sells for $15,00 per unit. The product has variable manufacturing costs of $11.50 per unit and fixed manufacturing costs of $2.30 per unit (based on $220,000 total fixed costs at current production of 120,000 units). Therefore, total production cost is future sales will not be affected by the sale, and Peters does not expect and additional fixed costs.

1. If Peters Company has excess capacity, should it accept the offer from Wesley? Show your calculations.

2. Does your answer change if Peters Company is operating at capacity? Why or why not?

1. If Peters Company has excess capacity, should it accept the offer from Wesley? Show your calculations. (Use a minus sign or parentheses to enter a decrease in profits.)

Expected increase in revenue

Expected increase in variable manufacturing costs

Expected increase/(decrease) in operating income

Peters should………….. the offer because operating income will…..…………

2. Does your answer change if Peters Company is operating at capacity? Why or why not? (Enter an expected decrease in revenue with a minus sign or parentheses.)

Revenue at capacity sale price

Less: Revenue at regular sale price Expected increase (decrease) in revenue

Peters should ……… the offer if operating at capacity because operating income will……….