Question

Special Order, Traditional Analysis

Fiorello Company manufactures two types of cold-pressed olive oil, Refined Oil and Top Quality Oil, out of a joint process. The joint (common) costs incurred are $91,400 for a standard production run that generates 34,600 gallons of Refined Oil and 17,300 gallons of Top Quality Oil. Additional processing costs beyond the split-off point are $2.60 per gallon for Refined Oil and $2.05 per gallon for Top Quality Oil. Refined Oil sells for $4.45 per gallon, while Top Quality Oil sells for $8.25 per gallon.

MangiareBuono, a supermarket chain, has asked Fiorello to supply it with 34,600 gallons of Top Quality Oil at a price of $8 per gallon. MangiareBuono plans to have the oil bottled in 16-ounce bottles with its own MangiareBuono label.

If Fiorello accepts the order, it will save $0.24 per gallon in packaging of Top Quality Oil. There is sufficient excess capacity for the order. However, the market for Refined Oil is saturated, and any additional sales of Refined Oil would take place at a price of $3.36 per gallon. Assume that no significant non-unit-level activity costs are incurred.

Required:

1. What is the profit normally earned on one production run of Refined Oil and Top Quality Oil?

$

Answer 1

Solution Refned Top Quakly elL Total Revenver 153970 |4२7२5 296695 Les Vaatabte expenge 8996D 35465 1254a5 Contubution m 64010 Mangin io260 171270 91400 Lers oint Cest 79870 operating Income