Question

The Delmar Beverage Co. produces a premium root beer that is sold throughout its chain of restaurants in the Midwest. The coma. Identify all the relevant costs that Delmar Beverage should consider in evaluating the special sales order from SaveMore?c-1. Identify all the relevant costs that Delmar Beverage should consider in evaluating the special sales order from SaveMore

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Answer #1

Solution a:

Per gallon
Raw Materials $3.06
Direct Labor $2.17
Variable Overhead $2.11
Distribution $1.52
Total relevant costs per gallon $8.86

Solution b:

Computation of Increase in Operating income from special Order
Special order Price $10.00
Less:Relevant cost per gallon $8.86
Contribution Margin per gallon $1.14
Number of gallons in special order 475
Increase in operating Income $541.50

Solution c-1:

Per gallon
Current Sales $13.00
Less: Variable cost
Raw Materials $3.06
Direct Labor $2.17
Variable Overhead $2.11
Distribution $1.05
$8.39
Current Contribution Margin $4.61

Total Relevant Cost = $8.86 + $4.61 = $13.47

Solution c-2:

Decrease in Operating income = 475 * (Special Order price - Total relevant cost)

= 475 *($10 - $13.47) = $1648.25

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