Question

Assume that MTA Sandwiches sells sandwiches for $3.30 each. The cost of each sandwich follows: Materials Labor Variable overhead Fixed overhead ($17,440 per month, 21,800 units per month) Total cost per sandwich $ 0.90 0.30 0.60 0.80 $2.60 One of MTA's regular customers asked the company to fill a special order of sandwiches at a selling price of $2.50 each for a fund-raising event sponsored by a social club at the local college. MTA has capacity to fill it without affecting total fixed costs for the month. MTA's general manager was concerned about selling the sandwiches below the cost of $2.60 per sandwich and has asked for your advice. Required: a. Prepare a schedule to show the impact on MTA's profits of providing 500 sandwiches in addition to the regular production and sales of 21,800 sandwiches per month. (Select option "higher" or "lower", keeping Status Quo as the base. Select "None" if there is no effect.) Status Quo 21,800 Units Alternative 22,300 Units Difference Sales revenue Less variable costs: Materials Labor Variable overhead Total variable cost Contribution margin Less: Fixed costs Operating profit $ 0 $ b. Based solely on the data given, what is the lowest price per sandwich at which the special order can be filled without reducing MTA's profits? (Round your answer to 2 decimal place! Lowest price per sandwich

Answer 1

		status quo	alternative	difference
		21800 units	22300 unit
sales reveunue(21800*3.30)+(21800*3.30+500*2.50)		71940	73190	1250
less: variable costs:
materials		19620	20070	450
labor		6540	6690	150
variable overhead		13080	13380	300
total variable cost		39240	40140	900
contribution margin		32700	33050	350
less: fixed costs		17440	17440	0
Operating profit		15260	15610	350
2) lowest price = material +labor+variable overhead
lowest price = 0.90+0.30+0.60 = 1.80 per sandwitch