Making the Connection PTETS S S B. 2 INTEGRATIVE CHAPTERS 3, 5, 8, and 12) Nelvant Costing, Cost-Based Pricing, Cost Behavior, and Present Value Analysis for NoFat Chapters Objectives Examples 3-1 8-2 8-2 12 12-3 12-5 12-1 12-3 12-6 The purpose of this integrated exercise is to demonstrate how a special sales-relevant decision analysis relies on knowiedge of cost behavior (including variable, fixed, and batch costs) and how the adoption of long-term time horizon can affect the final decision. Special Sales Offer Relevant Analysis NoFat manufactures one product, olestra, and sells it to large potato chip man the key ingredient in nonfat snack foods, including Ruffles, Lays, Doritos, and Tostitos products. For each of the past 3 years, sales of olestra have been annual volume of 125,000 pounds. Therefore, the company has ended significant unused capacity. Due to a short shelf life, NoFat must sell every pound of olestra ufacturers as brand far less than the expected with each year uces each year. As a result, NoFat's controller, Allyson Ashley, has decided to seek out tential special sales offers from other companies. One company, Patterson Union (PU) toxic waste cleanup company-offered to buy 10,000 pounds of olestra from NoFat during December for a price of $2.20 per pound. PU discovered through its research that olestra hars proven to be very effective in cleaning up toxic waste locations designated as Superfund Sites by the U.S. Environmental Protection Agency. Allyson was excited, noting that This is another way to use our expensive olestra plant!" The annual costs incurred by NoFat to produce and sell 100,000 pounds of olestra are a follows: Variable costs per pound: Direct materials Variable manufacturing overhead Sales commissions Direct manufacturing labor S 1.00 0.75 0.50 0.25 Total fixed costs: Customer hotline service Machine setups Plant machinery lease 5 3,000 4,000 40,000 12,000