Question

Fixed costs included in this income statement are $2,000 for meal production and $400 for administrative costs. Maria has received a special request from an organization sponsoring a picnic to raise funds for the Special Olympics. This organization is willing to pay $3.35 per meal for 300 meals on April 10. Maria has sufficient idle capacity to fill this special order. These meals will incur all of the variable costs of meals produced, but variable administrative costs and total fixed costs will not be affected

Answer 1

Answer:

While the special order generates a positive differential cost of $15

It should be rejected.

As this is an insignificant reward (15 / 1,000 = 1.5%)

considering the effort needed (300 / 2,000 = 15% production)

We increase production by 15% to increase our income by 1.5%

Any deviation from the expected cost will turn the project into a negative outcome the project is not useful for the current cost structure.

Explanation:

MISSING INFORMATION

                                  TOTAL     ///  Per Unit

Sales revenue           $10,000       $ 5.00  

Costs of meals               8,000          4.00  

Gross profit                     2,000          1.00  

Administrative costs        1,000         0.50  

Operating profit                1,000        0.50

Fixed Cost

2,000 meal production

400 administrative cost

Variable cost:

unit sold: 10,000 / 5.00 = 2,000

Total    Cost: 9,000

Less fixed of 2,400

Variable cost  6,600

6,600 / 2,000 units  = 3.3 per unit

Special order:

Sales revenue 3.35 x 300 = 1,005

Cost per unit:   3.30 x 300 =  990  

revenue                                      15