Question

Assume that MTA Sandwiches sells sandwiches for $3.10 each. The cost of each sandwich follows: Materials Labor Varable overhead Fixed overhead 522 580 per month, 18.800 units per month Total cost per sandwich $2.80 One of MTA's regular customers asked the company to fill a sancial ander of sandwiches at a saling rice of $1.90 nach for a fund-raising avant sparsored by a social dun at the local collega MTA has capacity to fill it without affecting total fixed costs for the month. MTA'S general inanager was concerned about saling the sandwiches below the cost of $2.80 per sandwich and has asked for your advice. Required: a. Prepare a schedule to show the impact on MTA's profits of providing 800 sandwiches in addition to the regular production and sales of 18,800 sandwiches per month (Select option "higher or "lowerkeeping Status Quo as the base. Select "None" If there is no effect) 18.800 Units 19.500 Units Difference Sales revenue Less varble cous Materials Labar Variable overhead Total variable cost S Contribution margin LARR F inals Dparating profit o l $ 0 b. Based solely on the data given, what is the lowest price per sandwich at which the special order can be filed without reducing MTA's profits? (Round your answer to 2 decimal places.) Lowest price ..........per dich

Answer 1

a	Schedule showing the impact of MTA's profits of providing 800 sandwiches in addition to the regular production and sales of 18800 sandwiches per month:-
	The company has spare capacity to make 800 additional units . So the relevant cost to consider is only variable cost.
	Statement of Operating Profit (loss)
		Status Quo (18800 units)			Special Order (800 units)			Alternative (19600 units)
		Units	Per Unit	Amount	Units	Per Unit	Amount	Amount
		a	b	c =a*b	d	e	f =d*e	g =c+f
	Sales Revenue	18800	$              3.10	$               58,280	800	$      1.90	$     1,520	$              59,800
	Less: Variable Cost
	Materials	18800	$              0.80	$               15,040	800	$      0.80	$        640	$              15,680
	Labor	18800	$              0.40	$                 7,520	800	$      0.40	$        320	$                 7,840
	Variable overhead	18800	$              0.40	$                 7,520	800	$      0.40	$        320	$                 7,840
	Total Variable Cost			$               30,080			$     1,280	$              31,360
	Contribution Margin			$               28,200			$        240	$              28,440
	Less: Fixed Cost	18800	$              1.20	$               22,560			$            -	$              22,560
	Operating Profit (loss)			$                 5,640			$        240	$                5,880
	Schedule showing the impact on MTA's profits of providing 800 sandwiches in addition to the regular production and sales of 18800 sandwiches per month
		Status Quo	Alternative	Difference
		18800 units	19600 units
	Sales Revenue	$         58,280	$         59,800	$                 1,520	higher
	Less: Variable Cost
	Materials	$         15,040	$         15,680	$                     640	higher
	Labor	$           7,520	$           7,840	$                     320	higher
	Variable overhead	$           7,520	$           7,840	$                     320	higher
	Total Variable Cost	$         30,080	$         31,360	$                 1,280	higher
	Contribution Margin	$         28,200	$         28,440	$                     240	higher
	Less: Fixed Cost	$         22,560	$         22,560
	Operating Profit (loss)	$           5,640	$           5,880	$                     240	higher
b.	Lowest price per sandwich at which the special order can be filled without reducing MTA's profits:-
	Relevant Costs:
	Direct materials		$0.80
	Direct labor		$0.40
	Variable factory overhead		$0.40
	Relevant Cost		$1.60	per sandwich
	Lowest price per sandwich at which the special order can be filled without reducing MTA's profits will be just equal to relevant cost = $1.60. So Lowest Price = $1.60

Feel free to ask any clarification, if required. Kindly provide feedback by thumbs up, if satisfied. It will be highly appreciated.
Thank you.