Assume that MTA Sandwiches sells sandwiches for $3.10 each. The
cost of each sandwich follows.
Materials | $ | 1.10 | |
Labor | 0.30 | ||
Variable overhead | 0.30 | ||
Fixed overhead ($20,700 per month, 20,700 units per month) | 1.00 | ||
Total costs per sandwich | $ | 2.70 | |
One of MTA's regular customers asked the company to fill a special
order of sandwiches at a selling price of $2.10 each for a
fund-raising event 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 selling the
sandwiches below the cost of $2.70 and has asked for your
advice.
Required:
a. Prepare a schedule to show the impact on
MTA's profits of providing 900 sandwiches in addition to the
regular production and sales of 20,700 sandwiches per month.
b. Based solely on the data given, what is the lowest
price per sandwich at which the special order can be filled without
reducing MTA's profits?
Answer | |||||
Particulars |
20700 units | 21600 units | difference | ||
sale revenue (20700*3.10),(20700*3.10+900*2.10) | $ 64,170 | $ 66,060 | $ 1,890 | ||
less: variable costs | |||||
material | $ 22,770 | $ 23,760 | $ 990 | ||
labor | $ 6,210 | $ 6,480 | $ 270 | ||
variable overhead | $ 6,210 | $ 6,480 | $ 270 | ||
total variable cost | $ 35,190 | $ 36,720 | $ 1,530 | ||
contribution margin | $ 28,980 | $ 29,340 | $ 360 | ||
less: fixed costs | $ 20,700 | $ 20,700 | $ - | ||
operating profit | $ 8,280 | $ 8,640 | $ 360 | ||
2) lowest price | |||||
material | $ 1.10 | ||||
labor | $ 0.30 | ||||
variable overhead | $ 0.30 | ||||
lowest price per sandwich | $ 1.70 |
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