Answer:
MTA Sandwiches
a. A Schedule:
Special Order Regular Production Total
Total contribution $540 $18,900 $19,440
Fixed overhead 0 10,800 10,800
Profit $540 $8,100 $8,640
Profits increased by $540 with the special order.
b. The lowest price per sandwich at which this special order of 400 sandwiches can be filled without reducing MTA's profits is $4.05. This is equal to the unit variable cost. At this price, neither profit will be generated nor loss incurred from the special order.
Explanation:
a) Data and Calculations:
Cost of each sandwich:
Materials $ 2.70
Labor 0.90
Variable overhead 0.45
Fixed overhead
($10,800 per month,
6,000 units per month) 1.80
Total costs per sandwich $ 5.85
b) Computation of total profit for special order and regular production:
Special Order Regular Production Total
Selling price = $5.40 7.20
Variable (Relevant) cost:
Materials $ 2.70
Labor 0.90
Variable overhead 0.45 $4.05 $4.05
Contribution per unit $1.35 $3.15
Total contribution ($1.35*400) $540 $18,900 ($3.15*6,000) $19,440
Fixed overhead 10,800
Profit $8,640
