Reference no: EM133129639

Question - In 2014 Janice Martin fulfilled a life-long dream and moved her home-based cottage baking business to a retail storefront with a commercial kitchen.  Since then, she has continued to develop here product lines and now specializes in three products featuring high quality cocoa:  muffins, tortes, and cookies.

Janice just received the latest annual income statement, shown below.

	Muffins	Tortes	Cookies	Total
Sales volume	100,000 boxes	60,000 tortes	40,000 boxes
Sales revenue	$2,500,000	$2,400,000	$480,000	$5,380,000
Cost of goods sold	1,500,000	1,380,000	240,000	3,120,000
Gross profit	1,000,000	1,020,000	240,000	2,260,000
Selling & Administrative Expense
Variable	400,000	360,000	80,000	840,000
Fixed	330,000	260,000	180,000	770,000
Total Selling & Administrative Expense	730,000	620,000	260,000	1,610,000
Operating income (loss)	$270,000	$400,000	$(20,000)	$650,000

Janice's accountant, Denis Mangic, provided her with the following unit costs for each of the three products so Janice can understand what is included in cost of goods sold.

	Muffins	Tortes	Cookies
Variable cost of goods sold	$12.00	$18.00	$4.00
Fixed cost of goods sold	3.00	5.00	2.00
Variable selling & administrative	4.00	6.00	2.00
Total unit cost	$19.00	$29.00	$8.00

Denis informed Janice that in developing the product costs, he has allocated $1.00 per unit in fixed cost of goods sold for manufacturing overhead costs that are incurred to support the entire kitchen area.  All other fixed costs are incurred to support individual product lines. He also confirmed that $240,000 in corporate advertising costs that, because the ads feature all three products, have been allocated equally across the three product lines as part of fixed selling and administrative expenses.

A new coffee shop in town approached Janice and asked to purchase 5,000 boxes of cookies to serve in the shop. The owner has offered to pay $7.00 per box, but he would like the cookies to be individually packaged, which Janice estimates will add $0.25 in costs per box.  Since the owner has contacted Janice directly, the bakery will save $0.75 per box in standard selling and administrative costs on the order. The bakery only has adequate capacity to produce 3,500 boxes.

Required -

1. Calculate the contribution margin per box for the special order. 

2. Calculate the total contribution margin Janice will earn from the special order if she accepts it.

3. Should Janice should accept the special order (YES or NO)?