Pietarsaari Oy, a Finnish company, produces cross-country ski poles that it sell
ID: 2480397 • Letter: P
Question
Pietarsaari Oy, a Finnish company, produces cross-country ski poles that it sells for €30 a pair. (The Finnish unit of currency, the euro, is denoted by €.) Operating at capacity, the company can produce 56,000 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 9,000 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 47,000 pairs of ski poles this year. (Total fixed manufacturing overhead cost would be the same whether 47,000 pairs or 56,000 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 47,000 pairs of ski poles were produced and sold during the year? (Input the amount as a positive value. Omit the "€" sign in your response.)
Assume the same situation as described in (1) above, except that the company is already operating at capacity and could sell 56,000 pairs of ski poles through regular channels. Thus, accepting the army’s offer would require giving up sales of 9,000 pairs at the normal price of €30 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 9,000 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 €30 a pair. (The Finnish unit of currency, the euro, is denoted by €.) Operating at capacity, the company can produce 56,000 pairs of ski poles a year. Costs associated with this level of production and sales are given below:
Explanation / Answer
1 Additional order Quantity 9,000 Fixed price per pair 4 Fixed Manufactuing Overhead 5 Incremental Revenue per unit 9 Total increase in net operating income 81,000 Fixed cost considered because in both case it will be same, so company have additional benefit 2 If company could sell 56000 units then Profit of the company (30-23) per unit 7 Fixed price per pair received 4 If company accept the per pair income reduced 3 Then total profit Decrease(9000*3) $27000