Question

Maria's Food Service provides meals that nonprofit organizations distribute to handicapped and elderly people. Here is her forecasted income statement for April, when she expects to produce and sell 2,600 meals: Amount Per Unit Sales revenue $ 14,560 $ 5.60 Costs of meals produced 11,180 4.30 Gross profit $ 3,380 $ 1.30 Administrative costs 1,300 0.50 Operating profit $ 2,080 $ 0.80 Fixed costs included in this income statement are $3,380 for meal production and $520 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 $3.30 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. Required: a. What impact would accepting this special order have on operating profit

Answer 1

Answer:

Effect on income= $90 increase

Explanation:

Giving the following information:

Costs of meals produced= 4.30

The fixed costs included in this income statement are $3,380

Special offer= $3.30 per meal for 300 meals on April 10.

First, we need to calculate the unitary fixed costs and deduct them from the total unitary cost.

Unitary fixed costs= 3,380/2,600= $1.3

Unitary variable cost= 4.3 - 1.3= 3

Now, we can calculate the effect on income:

Effect on income= 300*(3.3 - 3)

Effect on income= $90 increase