Question

Poppycrock, Inc., manufactures large crates of microwaveable popcorn that are typically sold to distributors. Its main factory has the capacity to manufacture and sell 35,000 crates per month. The following information is available for the factory. 25.09 Sales price per crate Variable cost per crate: Direct materials Direct labor Variable overhead Fixed costs per month 5.50 10.50 4.00 $101,000.00 Boys and Girls of Canada is a not-for-profit organization that raises funds each year by selling popcorn door-to-door. It offers to pay Poppycrock $22 per crate for a special-order batch of 5,000 crates. The special-order popcorn would include a unique label with information about the Boys and Girls of Canada. The additional cost of the label is estimated at $1.00 per crate. In addition, the variable overhead for these special-order crates would decrease by $0.50 because there would be no distribution costs. LOVEL a. What is the incremental cost of creating a normal crate of popcorn? A special-order crate of popcorn? (Round your answers to 2 decimal places.) b-1. What is the impact on Poppycrock's monthly operating profit if it accepts the offer and it is producing and distributing 30,000 normal crates per month? b-2. What is the opportunity cost of not accepting the offer? C-1. What is the impact on Poppycrock's monthly operating profit if it accepts the offer and it is producing and selling 35,000 normal crates per month? C-2. What is the opportunity cost of accepting the offer? - a. Incremental unit cost of creating a normal crate Incremental unit cost of creating a special-order crate b-1. Impact on operating profit b-2. Opportunity cost c-1. Impact on operating profit c-2. Opportunity cost

Answer 1

a. Incremental unit cost of creating a normal crate Incremental unit cost of creating a special-order crate b-1. Impact on operating profit b-2. Opportunity cost C-1. Impact on operating profit C-2. Opportunity cost $ 20.00 $ 20.50 $ 7,500.00 $ 7,500.00 $ 17,500.00 $ 17,500.00 a. Incremental unit cost of creating a normal crate = Direct materials + Direct Labor + Variable Overhead Computation of Incremental unit cost of creating a normal crate Direct Materials 5.50 Direct Labor 10.50 Variable Overhead 4.00 Incremental unit cost of creating a normal crate $ 20.00 Incremental unit cost of creating a special-order crate = Cost of normal crate + Additional cost - Saving in variable cost Computation of Incremental unit cost of creating a special-order crate Incremental unit cost of creating a normal crate $ 20.00 Add: Additional cost 1.00 Less: Saving in variable cost Incremental unit cost of creating a special-order crate $ 20.50 -0.50

b-1. सी Current Operating profit = (Contribution per unit X Units sold) - Fixed cost Computation of Current Operating profit Sales price per crate Less: Incremental unit cost of creating a normal crate Contribution per unit Units Sold Total Contribution (30,000 X $5) Less: Fixed Cost Current Operating profit सी 25.00 -20.00 5.00 30,000 $ 1,50,000.00 -1,01,000.00 $ 49,000.00 Additional Operating Profit from special order = Contribution margin per unit X Units sold = ($22.00 - $20.50) X 5,000 = $1.50 X 5,000 $7,500.00 Operating profit will increase by amount $ 7,500.00 b-2. The opportunity cost for not accepting the offer is $7,500, it is an amount equal to Additional Operating Profit from special order जी C-1. Operating profit = (Contribution per unit X Units sold) - Fixed cost Sales price per crate Less: Incremental unit cost of creating a normal crate Contribution per unit Units Sold Total Contribution (35,000 X $5) Less: Fixed Cost Operating profit with full capacity की 25.00 -20.00 5.00 35,000 1,75,000.00 -1,01,000.00 74,000.00 $ $ With the special order the monthly operating profit would be: Operating profit = [($25.00 - $20.00) X 30,000] + [$22.00 - $20.50) X 5,000] - $101,000 $ 56,500.00 Therefore the operating profit will decrease to $56,500 from $74,000 by accepting special order (i.e. by $17,500).

c-2. The opportunity cost for accepting the offer is $17,500, it is an amount equal to Additional Operating Profit for maufacturing in full capacity.