Question

Help Maria's Food Service provides meals that nonprofit organizations distribute to handicapped and elderly people. The following is her forecasted income statement for April, when she expects to produce and sell 3,000 meals. Sales revenue Costs of meals produced Gross profit Administrative costs Operating profit Amount $18,000 13,500 $ 4,500 2,100 $ 2,400 Per Unit $6.00 4.50 $1.50 0.70 $0.80 Fixed costs included in this income statement are $4,500 for meal production and $600 for administrative costs. Maria has received a special request from an organization sponsoring a picnic to raise funds for the Special Olympics. This organization is willing to pay $3.50 per meal for 300 meals on April 10. Maria has sufficient idle capacity to fill this special order. These meals will incur all of the variable costs of meals produced, but variable administrative costs and total fixed costs will not be affected. Required: a. What impact would accepting this special order have on operating profit? (Select option "higher" or "lower", keeping Status Quo as the base. Select "none" if there is no effect.) Status Quo 3,000 Units Alternative 3,300 Units Difference Sales revenue Variable costs: Meals Administrative Contribution margin Fixed costs Operating proft

Answer 1

Question

Answer :

	Per unit	Status Quo	Alternative	Difference
Units		3000	3300	300
Sales	$6	$18,000	$19,050	$1,050
Less: Variable cost
Meals	$3	$9,000	$9,900	$900
Adminstrative	$0.50	$1,500	$1,500	$0
Contribution	$2.50	$7,500	$7,650	$150
Less: Fixed Cost		$5,100	$5,100	$0
operating Profit		$2,400	$2,550	$150
Higher operating profit after accepting this special order
Working Notes :
			Units	Total
sales	$18000/3000
	$6		3000	$18,000
sales for
Additional
300 Units	$3.5		300	$1,050
Total Sales for Alternaive			$19,050
3300 units
Variable cost
	Total Variable cost		Per Unit
meals	$13500 - $4500
	9000
	$9000		$9000/3000
Meals cost per unit			$3.0
Admisntrative cost	$2100 -$600
	1500
	$1500		$1500/3000
Adminstrative cost			$0.5
per unit