Pietarsaari Oy, a Finnish company, produces cross-country ski poles that it sell
ID: 2375330 • Letter: P
Question
Pietarsaari Oy, a Finnish company, produces cross-country ski poles that it sells for 31 a pair. (The Finnish unit of currency, the euro, is denoted by ) Operating at capacity, the company can produce 51,000 pairs of ski poles a year. Costs associated with this level of production and sales are given below:
The Finnish army would like to make a one-time-only purchase of 9,300 pairs of ski poles for its mountain troops. The army would pay a fixed fee of 4 per pair, and in addition it 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 41,700 pairs of ski poles this year. (Total fixed manufacturing overhead cost would be the same whether 41,700 pairs or 51,000 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%u2019s offer, by how much would net operating income increase or decrease from what it would be if only 41,700 pairs of ski poles were produced and sold during the year? (Input the amount as a positive value..)
Assume the same situation as described in (1) above, except that the company is already operating at capacity and could sell 51,000 pairs of ski poles through regular channels. Thus, accepting the army%u2019s offer would require giving up sales of 9,300 pairs at the normal price of 31 a pair. If the army%u2019s offer is accepted, by how much will net operating income increase or decrease from what it would be if the 9,300 pairs were sold through regular channels? (Input the amount as a positive value. Omit the sign in your response.)
Pietarsaari Oy, a Finnish company, produces cross-country ski poles that it sells for 31 a pair. (The Finnish unit of currency, the euro, is denoted by ) Operating at capacity, the company can produce 51,000 pairs of ski poles a year. Costs associated with this level of production and sales are given below:
Explanation / Answer
Var cost per ski pair are :-
Direct materials 10
Direct labor 3
Var Mfg OH 1
Var Selling Exp 2
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Total Var cost per ski pair 16
Total Fixed OH :
Fixed Mfg OH 204,000
Fixed selling exp 255,000
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Fixed OHs 459,000
So COnt per pair = SP pu - VC pu = 31-16 = 15
1. 41700 pairs are sold.
So COnt = 41700*15 = 625,500 ....(a)
Less Fixed Mfg OHs 459,000
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Net inc for 41700 units 166,500 ...........(b)
Var cost for Army order = 16-Var selling exp = 16-2 = 14
Fixed Cost pu = Fixed Mfg Cost pu
= 204000/51000 = 4 pu
SO Total Cost reimbursed = 14+4+4 (fixed fee) = 22
SO Cont pu from Army order = Total cost reimb pu - Var cost pu = 22-14 = 8
So Total Cont from Army order
= 9300*8 = 74,400 ....(b)
So with army order, Net Inc will increase by 74,400 ............Ans (1)
2. If 9300 Units were sold to Army, COnt from these will be 9300*8 = 74,400
If 9300 units were sold in Mkt, COnt = 9300*15 = 139,500
So by selling to Army, Net Incme will decrease by 139,500 -74,400 = 65,100 ..Ans (B)