Unformatted text preview: ions, are affected by production volume, not sales dollars. If the order is accepted, operating income increases by $85,500. 2. Whether the general manager is making a correct decision depends on many factors. He is incorrect if the capacity would otherwise be idle and if his objective is to increase operating income in the short run. If the offer is rejected, Teguchi, in effect, is willing to invest $85,500 in immediate gains forgone (an opportunity cost) to preserve the long‐run selling‐price 4
structure. He is correct if he thinks future competition or future price concessions to customers will hurt Teguchi’s operating income by more than $85,500. There is also the possibility that Andrews could become a long‐term customer. In this case, is a price that covers only short‐run variable costs adequate? Would the sales representative be willing to accept the lower flat sales commission (as distinguished from the regular $58,800 = 12% $490,000) on a long term basis? 3‐35 (15‐20 min.) CVP analysi...
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- Winter '12
- Energy costs, direct materials