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.

Sales price per crate	$	24.00
Variable cost per crate:
Direct materials		5.50
Direct labor		10.50
Variable overhead		3.90
Fixed costs per month	$	107,000.00

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.

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?

Please explan step by step!!

Answer 1

	Answer
a.	Incremental Cost of Creating a normal create of popcorn	$          19.90
	incremental costs = All variable costs ( direct labor $5.50 + direct materials $10.5 + variable overhead $3.90)
	special-order crate of popcorn
	(All variable cost of normal create $19.9 + Additional cost of Special Label $1.00 -Distribution Cost $0.50 )	$          20.40
b 1.	Monthly Operating Profit If it accepts the offer and it is producing and distributing 30000 normal crates
	(Number of Crates Sold 30,000 x Contribution margin $4.1 - Fixed Expenses $1,07,000 )	$        16,000
	Contribution margin = Sales - Variable cost
	=    $24 - $19.9
	=     $4.1
B2	If Poppycrock accepts the special order:
	Contribution margin for the 5,000 crates for the Boys and Girls of Canada order to its monthly profit
	( $ 22- $ 20.4) X 5000 crates	$          8,000
	Monthly operating profit with the special order ( $ 16000+ $ 8000)	$        24,000
	Therefor, Opportunity Cost for not accepting the offer	$          8,000
c.1	impact on Poppycrock's monthly operating profit if it accepts the offer and producing 35000 crates
	Monthly Operating profit without special order = ( $ 24- $ 19.9) X 35000 crates - Fixed Cost $ 1,07,000	$        36,500
	Monthly Operating profit with special order = [( $ 24- $ 19.9) X 30000 crates] + [($ 22 - $ 20.4) X 5000] - Fixed Cost $ 1,07,000
	= $ 123000 + $ 8000 -$ 107000	$24,000
c.2	Opportunity cost of accepting the offer when Poppycrock is operating at full capacity
	Differnce between monthly operating profit numbers ( $ 36,500 - $ 24,000)	$12,500