Question

Exercise 4-37 Pricing Decisions (LO 4-1, 2) Assume that MTA Sandwiches sells sandwiches for $3.40 each. The cost of each sandwich follows: $ 1.000 la Labor Varable overhead Fixed overhead 521,500 per month, 21.500 unils per month Total cost per sandwich One of MTA's regular customers asked the company ta filla sancial arder of sandwiches at a selling rice of $2.40 each for a fundraising avent 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 seling the sandwiches below the cost of $2.80 per sandwich and has asked for your advice. Required: a. Prepare a schedule to show the imanct on MTA's profits af araviding ID sandwiches in addition to the regular production and sales of 21.500 sandwiches per month. (Select option "higher" or "lower'', keeping Status Quo as the base. Select "None" If there is no effect) Status Quo 21.500 Units Alternative 22,100 Unita Difference Sales revenue Less variable costs: o l Labar Vanable overhead Total variable ccel S Corbulion margin IAR Flad anals Dperating prairi b. Based solely on the data giver, what is the lowest price per sandwich at which the special order can be filed without reducing MTA's profils? (Round your answer to 2 decimal places.) Lowest price per santaich

Answer 1

a)

	Status Quo 21500 units	Alternative 22100 units	Difference
Sales	(21500*$3.40)= $73100	(21500*$3.40+600*$2.40)= $74540	(74540-73100)= $1440	higher
Less: Variable costs
Materials	(21500*$1.00)= 21500	(22100*$1.00)= 22100	(22100-21500)= 600	higher
Labor	(21500*$0.60)= 12900	(22100*$0.60)= 13260	(13260-12900)= 360	higher
Variable overhead	(21500*$0.20)= 4300	(22100*$0.20)= 4420	(4420-4300)= 120	higher
Total variable cost	$38700	$39780	(39780-38700)= 1080	higher
Contribution margin	34400	34760	(34760-34400)= 360	higher
Less::Fixed costs	21500	21500	0	None
Operating profit	$12900	$13260	$360	higher

b)

Materials	$1.00
Labor	0.60
Variable overhead	0.20
Lowest price per sandwich	$1.80

Lowest price $1.80 per sandwich.