Question

Maria's Food Service provides meals that nonprofit organizations distribute to handicapped and elderly people. Here is her forecasted income statement for April, when she expects to produce and sell 3,000 meals:

amount / per unit
Sales revenue $ 18,000 / $ 6.00
Costs of meals produced 13,500 / 4.50

Gross profit $ 4,500 / $ 1.50
Administrative costs 2,100 /  0.70

Operating profit $ 2,400 / $ 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:
What impact would accepting this special order have on operating profit?

	Status Quo 3,000 Units	Alternative 3,300 Units	Difference	Higher/Lower/or None
Sales Revenue	$	$	$
Variable costs:
Meals
Administrative
Contribution Margin	$	$	$
Fixed costs
Operating profit	$	$	$

From an operating profit perspective for April, should Maria accept the order?
yes / no

Answer 1

we will prepare incremental analysis

fixed costs will not change as they are constant even when units increases

variable administrative costs and total fixed costs will not be affected.

	Status Quo 3,000 Units	Alternative 3,300 Units	Difference	Higher/Lower/or None
Sales Revenue	$18,000	$19,050[$18,000+$3.5*300]	$1,050[$19,050-18,000]	higher
Variable costs:
Meals	$9,000[$13,500-4,500]	$9,900[$9,000/3,000]*3,300	$900	Higher
Administrative	$1,500[$2,100-600]	$1,500	$0	None
Contribution Margin	$7,500 [$18,000-9,000-1,500]	$7,650	$150	higher
Fixed costs	$5,100[$4,500meals+$600administrative]	$5,100	$0	None
Operating profit	$2,400 [$7,500-5,100]	$2,550	$150	higher

Yes order should be accepted as it will increase the net profit by $150

please upvote if you find this helpful.Incase of query please comment.